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

When a company provides services on account, which of the following best describes the appropriate revenue recognition under accrual accounting?

Revenue is recognized when the services are provided, even if cash has not yet been received.

Revenue is not recognized until all related expenses have been paid.

Revenue is recognized when the invoice is paid by the customer, regardless of when the service was provided.

Revenue is recognized only when cash is received from the customer.

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Verified step by step guidance

Understand the concept of accrual accounting: Accrual accounting recognizes revenue when it is earned, not necessarily when cash is received. This principle ensures that financial statements reflect the economic activities of a company during a specific period.

Identify the key event for revenue recognition: In this scenario, the key event is the provision of services. Under accrual accounting, revenue is recognized when the company fulfills its obligation to provide the service, regardless of whether payment has been received.

Eliminate incorrect options: Review the provided choices and eliminate those that contradict the accrual accounting principle. For example, options suggesting revenue is recognized only when cash is received or when expenses are paid are inconsistent with accrual accounting.

Select the correct option: The correct choice aligns with the accrual accounting principle, which states that revenue is recognized when the services are provided, even if cash has not yet been received.

Summarize the reasoning: Revenue recognition under accrual accounting ensures that financial statements accurately reflect the company's performance by recognizing revenue at the time services are provided, not based on cash flow or payment timing.