Under the accrual accounting framework, when should revenue be formally recognized in the accounting records?
AWhen cash payment is physically received
BWhen goods or services are delivered and earned
CWhen the contract is signed
DAt the end of the fiscal accounting period
Explanation
• The Revenue Recognition Principle states that revenue must be recorded in the accounting period in which performance obligations are satisfied (when earned), regardless of cash flow timing.
• Cash accounting records revenue only upon receipt of cash, whereas accrual accounting matches revenue to the period earned.
• Earned revenue occurs when goods are delivered or services are fully rendered to customers.
Exam Relevance
- Topic: Financial Accounting
- Subtopic: Revenue Recognition
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