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 accrual basis of accounting, revenue is properly recognized when:

Cash is received from customers.

The related expenses are paid.

An invoice is sent to the customer.

It is earned, regardless of when cash is received.

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Verified step by step guidance

Understand the concept of accrual basis accounting: Under the accrual basis of accounting, revenue is recognized when it is earned, not necessarily when cash is received. This principle ensures that financial statements reflect the true economic activity of a business during a specific period.

Review the criteria for revenue recognition: Revenue is considered earned when the company has delivered goods or services to the customer and there is a reasonable certainty of payment. This aligns with the revenue recognition principle in accounting.

Analyze the options provided: Evaluate each option to determine whether it aligns with the accrual basis of accounting. For example, 'Cash is received from customers' refers to cash basis accounting, not accrual basis accounting.

Focus on the correct answer: The correct answer is 'It is earned, regardless of when cash is received.' This reflects the accrual basis principle, where revenue is recognized when the earning process is complete, regardless of the timing of cash flows.

Apply this understanding to similar scenarios: Practice identifying when revenue should be recognized under the accrual basis in different situations, such as when an invoice is sent or when related expenses are paid, to reinforce the concept.