Recording revenues before they are earned overstates current-period income; recording revenues in periods after they have been earned understates the recording period's income.

Question

Quizplus · Accepted Answer

Recording revenues before they are earned is a violation of the revenue recognition principle, which states that revenue should be recognized when it is earned and realized or realizable, and recording revenues in periods after they have been earned is a case of deferred revenue or unearned revenue, which is a liability until that revenue is recognized in future periods. Both of these scenarios result in misstated income for the period in question.

Recording Revenues Before They Are Earned Overstates Current-Period Income; Recording