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 statements regarding the recognition of revenues and expenses is correct?

Revenue is recognized only when cash is received, regardless of when it is earned.

Expenses are recognized when revenue is received, regardless of when the expense is incurred.

Expenses are recognized only when cash is paid, regardless of when the related revenue is earned.

Revenue is recognized when it is earned and realizable, regardless of when cash is received.

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Verified step by step guidance

Understand the concept of revenue recognition: Revenue is recognized when it is earned and realizable, meaning the company has performed the service or delivered the goods, and there is a reasonable certainty that payment will be received.

Understand the concept of expense recognition: Expenses are recognized when they are incurred, meaning when the company uses resources or services to generate revenue, regardless of when cash is paid.

Review the incorrect statements: The first statement is incorrect because revenue recognition is not dependent solely on cash receipt; it depends on earning and realizability. The second statement is incorrect because expenses are not recognized based on revenue receipt but when incurred. The third statement is incorrect because expenses are not recognized solely based on cash payment.

Identify the correct statement: Revenue is recognized when it is earned and realizable, regardless of when cash is received. This aligns with the accrual basis of accounting, which is the standard method used in financial accounting.

Apply the accrual basis principle: The accrual basis of accounting ensures that revenues and expenses are recognized in the period they occur, providing a more accurate representation of a company's financial position and performance.