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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Companies recognize revenue only when:

inventory is purchased

it is earned and realizable or realized

expenses are paid

cash is received from customers

Previous problemNext problem

Verified step by step guidance

Understand the concept of revenue recognition: Revenue is recognized when it is earned and realizable or realized, meaning the company has performed its obligations and there is reasonable assurance of payment.

Review the incorrect options: 'Inventory is purchased' refers to an asset acquisition, not revenue recognition. 'Expenses are paid' relates to expense recognition, not revenue. 'Cash is received from customers' is a cash flow event, but revenue can be recognized before cash is received if it is earned and realizable.

Focus on the correct principle: Revenue recognition is guided by accounting standards such as the Generally Accepted Accounting Principles (GAAP) or International Financial Reporting Standards (IFRS). These standards emphasize that revenue is recognized when the company has delivered goods or services and payment is assured.

Apply the principle to real-world scenarios: For example, if a company delivers a product to a customer and the customer agrees to pay within 30 days, the revenue is recognized at the time of delivery, not when the cash is received.

Summarize the key takeaway: Revenue is recognized when it is earned (the company has fulfilled its obligations) and realizable or realized (there is reasonable assurance of payment), regardless of when cash is received.