Which of the following activities does not violate the revenue recognition principle?
A) Recording cash received in advance from customers as revenue when the product is not yet shipped
B) Recording cash received in advance from customers as a liability when the product is not yet shipped
C) Recording revenue in December 2013 for units manufactured but not yet sold to customers
D) Not recording interest earned in 2013 until the cash is received in 2014

Question

Quizplus · Accepted Answer

Recording cash received in advance from customers as a liability when the product is not yet shipped is appropriate because it follows the revenue recognition principle. The principle states that revenue should be recognized when it is earned, which happens when the product is shipped or the service is performed, not when cash is received. Recording cash received in advance as revenue before the product is shipped (option A) would be premature, and recording revenue for units manufactured but not sold (option C) would be recognizing revenue before it is earned. Not recording interest earned until cash is received (option D) is appropriate because interest revenue should not be recognized until it is earned.

Which of the Following Activities Does Not Violate the Revenue