When is revenue recorded according to the revenue recognition principle?

When is revenue recorded according to the revenue recognition principle?

• A. When it is anticipated
• B. When it is earned
• C. When cash is received
• D. At the end of the fiscal year

Answer: (B)

The revenue recognition principle dictates that revenue should be recognized when it is earned, rather than when cash is received or anticipated. This means that the earnings process is considered complete when a company has delivered goods or services to a customer and has a reasonable expectation of payment. The key concept is that the revenue realization occurs at the point of completion of the transaction, reflecting the company's performance and the transfer of risks and rewards to the buyer. This principle helps to provide a more accurate picture of a company's financial position and results of operations during a given accounting period. Recognizing revenue when it is earned ensures that financial statements reflect the actual performance of the business, allowing stakeholders to make better-informed decisions based on the company's activities rather than on cash flow timing, which can vary significantly.

The revenue recognition principle dictates that revenue should be recognized when it is earned, rather than when cash is received or anticipated. This means that the earnings process is considered complete when a company has delivered goods or services to a customer and has a reasonable expectation of payment. The key concept is that the revenue realization occurs at the point of completion of the transaction, reflecting the company's performance and the transfer of risks and rewards to the buyer.

This principle helps to provide a more accurate picture of a company's financial position and results of operations during a given accounting period. Recognizing revenue when it is earned ensures that financial statements reflect the actual performance of the business, allowing stakeholders to make better-informed decisions based on the company's activities rather than on cash flow timing, which can vary significantly.