BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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The month the goods were sold.
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The month the goods were produced.
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The month the cash is received from the customer.
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None of the above.
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Detailed explanation-1: -The realization principle is the concept that revenue can only be recognized once the underlying goods or services associated with the revenue have been delivered or rendered, respectively. Thus, revenue can only be recognized after it has been earned.
Detailed explanation-2: -Essentially, the revenue recognition principle means that companies’ revenues are recognized when the service or product is considered delivered to the customer-not when the cash is received.
Detailed explanation-3: -When goods are sold on credit, debtors which is an asset account is debited as money is receivable from the customers and sales which is a revenue account is credited.
Detailed explanation-4: -When goods are sold on credit, accounts receivables account is debited and sales account is credited with an equal amount in order to record this transaction.