Multiple Choice
For contracts that include more than one separate performance obligation, how should revenue be recognized according to the revenue recognition principle?
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3. Accrual Accounting Concepts
Revenue Recognition and Expense Recognition
Multiple Choice
The core revenue principle states that:
A
Revenue should be recognized when expenses are paid.
B
Revenue should be recognized only when cash is received from customers.
C
Revenue should be recognized at the end of the fiscal year, regardless of when goods or services are delivered.
D
Revenue should be recognized when it is earned and realizable, regardless of when cash is received.
Verified step by step guidance1
Understand the core revenue recognition principle: Revenue is recognized when it is earned and realizable, meaning the company has delivered goods or services and there is a reasonable expectation of payment.
Clarify the distinction between earning revenue and receiving cash: Revenue recognition is not dependent on the timing of cash receipt but rather on the completion of the earning process.
Review the criteria for revenue recognition: Ensure that the goods or services have been delivered, and the amount of revenue can be reliably measured.
Consider the implications of accrual accounting: Accrual accounting requires recognizing revenue when it is earned, not necessarily when cash is received, aligning with the revenue recognition principle.
Apply the principle to real-world scenarios: For example, if a company delivers a product in December but receives payment in January, the revenue is recognized in December when the product was delivered.
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