A client owns a vinyl sign printing company. They completed a job on August 10, but payment was received on October 15. In which month should the revenue be recognized?

A client owns a vinyl sign printing company. They completed a job on August 10, but payment was received on October 15. In which month should the revenue be recognized?

• A. End of the year.
• B. September
• C. August
• D. October

Answer: (C)

Under accrual accounting, revenue is recognized when the seller has fulfilled the performance obligation, i.e., when the work is completed, not when cash is received. The vinyl sign printing job was completed on August 10, so the revenue is earned in August. The payment date in October affects cash flow and accounts receivable, but does not change when revenue is recognized. (If you were using cash-basis accounting, revenue would be recognized in October when cash is received, but accrual accounting recognizes it in August.)

Under accrual accounting, revenue is recognized when the seller has fulfilled the performance obligation, i.e., when the work is completed, not when cash is received. The vinyl sign printing job was completed on August 10, so the revenue is earned in August. The payment date in October affects cash flow and accounts receivable, but does not change when revenue is recognized. (If you were using cash-basis accounting, revenue would be recognized in October when cash is received, but accrual accounting recognizes it in August.)