Accounting: What the Numbers Mean 9th Edition by Wayne W McManus, Daniel F Viele, David H Marshall

Exercise 59

For the following questions, circle the best respones.

In what circumstance is it proper to recognize revenues before a sales transaction has occurred?

a. When management has a policy to do so.

b. When the conservatism principle applies.

c. When the going concern principle requires the recognition of revenues for cash payments received in advance from customers.

d. When the ultimate sales of the goods is assured because the products have readily determinable prices and can be sold without significant effort.

e. When it is certain that competitors will raise their prices in the near future.

Step 1 of 6

(a)

Revenues are almost always recognized in the period in they are earned, meaning that a company has officially sold its product or service. Management having a policy to recognize revenues before sales transaction has occurred is not appropriate.