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

Under the modified accrual basis of accounting, revenues should be recognized when:

They are earned, even if they are not measurable or available.

The related goods or services are delivered, regardless of cash receipt.

They are both measurable and available to finance current period expenditures.

Cash is received, regardless of when it is earned.

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Verified step by step guidance

Understand the modified accrual basis of accounting: This method is commonly used by governmental entities and focuses on recognizing revenues when they are both measurable and available to finance current period expenditures.

Define 'measurable': Revenues are considered measurable when the amount can be determined or reasonably estimated. This ensures that the financial statements reflect accurate and reliable information.

Define 'available': Revenues are considered available when they are collectible within the current period or soon enough thereafter to be used to pay liabilities of the current period. Typically, this is defined as within 60 days after the end of the fiscal period.

Compare the options provided in the problem: Evaluate each statement against the principles of the modified accrual basis. For example, revenues are not recognized simply when earned or when cash is received; they must meet the criteria of being both measurable and available.

Conclude that the correct answer aligns with the modified accrual basis principle: Revenues should be recognized when they are both measurable and available to finance current period expenditures.