BUSINESS ADMINISTRATION
FINANCIAL ACCOUNTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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Which of the following is not one of the criteria that normally must be met for revenue to be recognized according to the revenue recognition principle for accrual basis accounting?
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cash has been collected
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services have been performed
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goods have been transferred
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the amount the company expects to be entitled to receive is determinable
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Explanation:
Detailed explanation-1: -Explanation for correct answer: Collection of the cash is not a criterion to recognize revenue under GAAP.
Detailed explanation-2: -As per the revenue recognition principle, revenue can be recognized only when earned and not when the cash is received. The timing of the cash receipt is irrelevant, but the seller should initiate the performance obligation.
Detailed explanation-3: -In this instance, revenue is recognized when all four of the traditional revenue recognition criteria are met: (1) the price can be determined, (2) collection is probable, (3) there is persuasive evidence of an arrangement, and (4) delivery has occurred.
There is 1 question to complete.