Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

Financial Accounting

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

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Multiple Choice

Which of the following is considered a relevant cash flow for revenue or expense recognition under accrual accounting?

Cash paid for inventory that remains unsold at year-end

Cash received in advance for goods to be delivered next year

Cash borrowed from a bank to finance operations

Cash received from customers for goods delivered during the current period

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Verified step by step guidance

Understand the concept of accrual accounting: Accrual accounting recognizes revenues and expenses when they are earned or incurred, regardless of when cash is received or paid. This is different from cash accounting, which focuses solely on cash transactions.

Identify the relevant cash flow for revenue recognition: Under accrual accounting, revenue is recognized when goods or services are delivered, not necessarily when cash is received. Therefore, cash received from customers for goods delivered during the current period aligns with this principle.

Analyze the other options: Cash paid for inventory that remains unsold at year-end is not relevant for revenue recognition because the inventory has not been sold yet. Cash received in advance for goods to be delivered next year is deferred revenue and will be recognized in the future when the goods are delivered. Cash borrowed from a bank to finance operations is a financing activity and does not directly relate to revenue or expense recognition.

Focus on the timing of recognition: The key is to match revenues with the period in which the goods or services are provided. Cash received from customers for goods delivered during the current period matches this criterion, making it the relevant cash flow.

Conclude the reasoning: Based on the principles of accrual accounting, the correct answer is cash received from customers for goods delivered during the current period, as it reflects revenue earned in the current accounting period.