An entity usually cannot reasonably account for the profits related to inventory until that inventory is sold in the normal course of business.

Question

Quizplus · Accepted Answer

This is known as the "revenue recognition principle" and it is a fundamental accounting principle. According to this principle, revenue should be recognized (or accounted for) when it is earned, regardless of when it is received. In the case of inventory, revenue is earned when the inventory is sold to customers. Therefore, the profits related to inventory cannot be reasonably accounted for until the inventory is sold.

An Entity Usually Cannot Reasonably Account for the Profits Related