Under accrual accounting, which statement is true about revenue recognition?

Under accrual accounting, which statement is true about revenue recognition?

• A. Revenue is recognized when cash is received.
• B. Revenue is recognized when the order is placed.
• C. Revenue is recognized when earned, regardless of cash collection.
• D. Revenue is recognized at year-end.

Answer: (C)

Under accrual accounting, revenue is recorded when the business has earned it by delivering goods or performing a service and when collection is reasonably assured, not when cash is received. This means revenue recognition occurs at the point the earning process is complete, regardless of when the customer pays. Therefore, recognizing revenue when earned, regardless of cash collection, best reflects how the accrual basis tracks economic activity. The other ideas—recognizing revenue only when cash is received, only when an order is placed, or only at year-end—do not align with accrual principles, which tie revenue to the actual earning event rather than the timing of cash flows or administrative dates.

Under accrual accounting, revenue is recorded when the business has earned it by delivering goods or performing a service and when collection is reasonably assured, not when cash is received. This means revenue recognition occurs at the point the earning process is complete, regardless of when the customer pays. Therefore, recognizing revenue when earned, regardless of cash collection, best reflects how the accrual basis tracks economic activity. The other ideas—recognizing revenue only when cash is received, only when an order is placed, or only at year-end—do not align with accrual principles, which tie revenue to the actual earning event rather than the timing of cash flows or administrative dates.