Which of the following activities does not violate the revenue recognition principle?
A)Recording revenue in December 2011 for units manufactured but not yet sold to customers
B)Recording cash received in advance from customers as revenue when the product is not yet shipped
C)Not recording interest earned in 2011 until the cash is received in 2012
D)Recording cash received in advance from customers as a liability when the product is not yet shipped

Question

Quizplus · Accepted Answer

Recording cash received in advance from customers as a liability when the product is not yet shipped does not violate the revenue recognition principle. This is because the revenue recognition principle states that revenue should be recognized when it is earned, which means when the product or service has been delivered or performed, and the customer has the obligation to pay for it. Recording cash received in advance as a liability recognizes that the company has not yet fulfilled its obligation to deliver the product or service, and the revenue will be recognized once the product is shipped or service is performed.

Which of the Following Activities Does Not Violate the Revenue