Under the accrual basis of accounting, when should revenue be recognized?
Understand the Problem
The question is asking about the principles of revenue recognition under the accrual basis of accounting. It tests the understanding of when revenue should be recorded in the financial statements according to accounting standards.
Answer
Recognize revenue when it is earned, not when cash is received.
Revenue should be recognized when it has been earned, such as when goods are delivered or services are performed, regardless of when cash is received.
Answer for screen readers
Revenue should be recognized when it has been earned, such as when goods are delivered or services are performed, regardless of when cash is received.
More Information
In accrual accounting, the time of cash transactions does not influence revenue recognition. This reflects a more accurate financial position, matching revenues with related expenses.
Tips
A common mistake is confusing the accrual basis with cash basis, where revenue is recorded only when cash is received.
Sources
- When is revenue recognized under accrual accounting? - investopedia.com
- Recognizing Revenue under the Accrual Basis – Financial Accounting - content.one.lumenlearning.com
- What is an Accrual Basis of Accounting? - Vintti - vintti.com
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