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

For contracts that include more than one separate performance obligation, how should revenue be recognized according to the revenue recognition principle?

Revenue should be recognized when cash is received, regardless of the satisfaction of performance obligations.

Revenue should be allocated to each performance obligation based on its relative standalone selling price and recognized as each obligation is satisfied.

Revenue should be recognized evenly over the contract period, regardless of when obligations are satisfied.

Revenue should be recognized only when all performance obligations in the contract are fully satisfied.

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Verified step by step guidance

Step 1: Understand the revenue recognition principle, which states that revenue should be recognized when it is earned and realizable, not necessarily when cash is received.

Step 2: Identify that the problem involves contracts with multiple performance obligations. A performance obligation is a promise to deliver a distinct good or service to a customer.

Step 3: Determine how revenue should be allocated. According to the principle, revenue should be allocated to each performance obligation based on its relative standalone selling price. This ensures that the revenue reflects the value of each obligation within the contract.

Step 4: Recognize revenue as each performance obligation is satisfied. Satisfaction occurs when control of the promised good or service is transferred to the customer, either over time or at a point in time.

Step 5: Avoid common misconceptions, such as recognizing revenue evenly over the contract period or waiting until all obligations are fully satisfied. These approaches do not align with the revenue recognition principle for contracts with multiple obligations.