Revenue Recognition – MCQ

Practice Question

Intro to Financial Accounting
Investing and Financing Decisions
Revenue Recognition
MCQs

Revenue should be recognized when:

  1. Cash is received from the customer.
  2. Goods or services are delivered to the customer.
  3. An invoice is issued to the customer.
  4. The customer places an order.
Answer +
Correct Answer: B
Explanation +

According to the Revenue Recognition Principle, revenue is recognized when goods or services are delivered to the customer, not necessarily when cash is received.

This ensures that revenue is matched with the expenses incurred to generate it, providing a more accurate representation of the company’s financial performance.

For instance, if a company delivers a product today but receives payment next month, the revenue is still recognized today — the delivery date.