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

According to the revenue recognition principle, revenue should be recognized:

only when cash is received from customers

at the end of the accounting period, regardless of when the sale occurs

when it is earned and realizable, regardless of when cash is received

when expenses related to the revenue are paid

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Verified step by step guidance

Understand the revenue recognition principle: This principle states that revenue should be recognized when it is earned and realizable, regardless of when cash is received. This ensures that financial statements accurately reflect the company's performance during a specific period.

Clarify the term 'earned': Revenue is considered earned when the company has delivered goods or services to the customer and fulfilled its obligations under the contract.

Clarify the term 'realizable': Revenue is realizable when it is reasonably certain that payment will be received, even if cash has not yet been collected.

Eliminate incorrect options: Review the provided choices and eliminate those that contradict the revenue recognition principle, such as recognizing revenue only when cash is received or at the end of the accounting period regardless of the sale date.

Select the correct answer: Based on the principle, the correct answer is 'when it is earned and realizable, regardless of when cash is received.' This aligns with the accrual basis of accounting, which is widely used in financial reporting.