Under accrual accounting, when is revenue recognized for a service performed on August 10 but paid in October?

Under accrual accounting, when is revenue recognized for a service performed on August 10 but paid in October?

• A. August
• B. October
• C. End of the year
• D. When payment is received

Answer: (A)

Under accrual accounting, revenue is recognized when the service is performed, not when cash is received. Since the service was completed on August 10, the revenue is recorded in August. The payment that arrives in October affects cash and accounts receivable then, but it doesn’t change the period in which the revenue was earned. So the August recognition reflects when the earning process occurred, while cash collection in October simply settles the receivable.

Under accrual accounting, revenue is recognized when the service is performed, not when cash is received. Since the service was completed on August 10, the revenue is recorded in August. The payment that arrives in October affects cash and accounts receivable then, but it doesn’t change the period in which the revenue was earned. So the August recognition reflects when the earning process occurred, while cash collection in October simply settles the receivable.