Under accrual accounting, when are revenues recognized?

Under accrual accounting, when are revenues recognized?

• A. When received
• B. When billed
• C. When cash paid
• D. When earned

Answer: (D)

Under accrual accounting, revenue is recognized when earned—meaning the company has fulfilled its obligation by delivering the goods or performing the service and control has passed to the customer. It doesn't depend on when cash is received or when an invoice is issued. This aligns revenue with the period in which the economic activity occurred, not when payment happens. For example, if you ship goods today and bill the customer, revenue is recognized today even if payment arrives later. If cash is received before earning, you record it as cash with a liability (unearned revenue) and only recognize the revenue when the service is performed or the goods are delivered.

Under accrual accounting, revenue is recognized when earned—meaning the company has fulfilled its obligation by delivering the goods or performing the service and control has passed to the customer. It doesn't depend on when cash is received or when an invoice is issued. This aligns revenue with the period in which the economic activity occurred, not when payment happens.

For example, if you ship goods today and bill the customer, revenue is recognized today even if payment arrives later. If cash is received before earning, you record it as cash with a liability (unearned revenue) and only recognize the revenue when the service is performed or the goods are delivered.