Multiple Choice
Which of the following companies records revenues at the point of selling inventory, in accordance with the revenue recognition principle?
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3. Accrual Accounting Concepts
Revenue Recognition and Expense Recognition
Multiple Choice
Which of the following is NOT one of the five steps for recognizing revenue under the revenue recognition principle?
A
Allocate the transaction price to performance obligations
B
Record cash receipts from customers
C
Determine the transaction price
D
Identify the contract with a customer
Verified step by step guidance1
Step 1: Understand the revenue recognition principle, which is a framework for recognizing revenue in financial accounting. It consists of five specific steps to ensure revenue is recognized appropriately.
Step 2: Review the five steps of revenue recognition: (1) Identify the contract with a customer, (2) Identify the performance obligations in the contract, (3) Determine the transaction price, (4) Allocate the transaction price to the performance obligations, and (5) Recognize revenue when (or as) the entity satisfies a performance obligation.
Step 3: Compare the options provided in the problem to the five steps of revenue recognition. The options are: 'Allocate the transaction price to performance obligations,' 'Record cash receipts from customers,' 'Determine the transaction price,' and 'Identify the contract with a customer.'
Step 4: Identify which option does not align with the five steps of revenue recognition. Specifically, 'Record cash receipts from customers' is not part of the revenue recognition process, as it pertains to cash flow management rather than revenue recognition.
Step 5: Conclude that the correct answer is 'Record cash receipts from customers,' as it is not one of the five steps for recognizing revenue under the revenue recognition principle.
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