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

Which of the following companies records revenues at the point of selling inventory, in accordance with the revenue recognition principle?

A software company that recognizes revenue when cash is received, regardless of delivery

A subscription service that records revenue evenly over the subscription period

A retail store that sells merchandise to customers at the checkout counter

A construction company that recognizes revenue only upon project completion

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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, meaning the company has delivered goods or services and there is reasonable certainty of payment.

Analyze the options provided: Each company has a different method of recognizing revenue. Compare their practices to the revenue recognition principle.

Option 1: A software company that recognizes revenue when cash is received, regardless of delivery. This violates the revenue recognition principle because revenue should be recognized when the service or product is delivered, not just when cash is received.

Option 2: A subscription service that records revenue evenly over the subscription period. This aligns with the revenue recognition principle because the service is provided over time, and revenue is recognized proportionally as the service is delivered.

Option 3: A retail store that sells merchandise to customers at the checkout counter. This aligns with the revenue recognition principle because the revenue is recognized at the point of sale, when the merchandise is delivered to the customer and payment is made.