Which scenario would most likely preclude immediate revenue recognition under GAAP, given KOTA Longboards recognizes revenue when there is arrangement evidence, delivery, fixed/det... Which scenario would most likely preclude immediate revenue recognition under GAAP, given KOTA Longboards recognizes revenue when there is arrangement evidence, delivery, fixed/determinable fee, and assured collection? A) Advance payment received, no production/shipment. B) Custom longboard shipped, payment pending authorization. C) Retailer orders with return right. D) Online purchase, immediate payment, same-day shipping.
Understand the Problem
The question is asking which scenario prevents immediate revenue recognition based on GAAP (Generally Accepted Accounting Principles). GAAP states that revenue can be recognized when: there is evidence of an arrangement, delivery has occurred, the fee is fixed/determinable, and collection is reasonably assured. We need to identify the scenario that violates one or more of these conditions.
Answer
A) Advance payment received, no production/shipment.
The scenario that would most likely preclude immediate revenue recognition under GAAP is A) Advance payment received, no production/shipment. This is because revenue recognition generally requires both delivery and assurance of collection.
Answer for screen readers
The scenario that would most likely preclude immediate revenue recognition under GAAP is A) Advance payment received, no production/shipment. This is because revenue recognition generally requires both delivery and assurance of collection.
More Information
Under GAAP (Generally Accepted Accounting Principles), revenue recognition typically occurs when a company has substantially performed its obligations, which usually means the goods or services have been delivered or provided to the customer. Receiving payment in advance without delivering the product or service means the company hasn't earned the revenue yet.
Tips
A common mistake is to assume that receiving payment is enough to recognize revenue. However, GAAP requires that the earnings process is substantially complete.
Sources
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