Revenue is properly recognized:
A) Only if the transaction creates an account receivable.
B) At the end of the accounting period.
C) When the customer makes an order.
D) Upon completion of the sale or when services have been performed and the business obtains the right to collect the sales price.
E) When cash from a sale is received.

Question

Quizplus · Accepted Answer

Revenue should be recognized when the sale has been completed or services have been performed and the business has obtained the right to collect payment. This is known as the revenue recognition principle and is in accordance with Generally Accepted Accounting Principles (GAAP). Choice A is incorrect because not all transactions result in an account receivable. Choice B is incorrect because revenue cannot be recognized only at the end of the accounting period; it must be recognized when earned. Choice C is incorrect because an order does not necessarily result in revenue being earned. Choice E is incorrect because cash receipt does not determine when revenue should be recognized; revenue should be recognized when earned.

Revenue Is Properly Recognized