Practice Question
When revenue is recognized under the revenue recognition principle, which of the following must occur?
- Cash must be collected from the customer.
- The company has delivered goods or performed services as promised.
- An invoice must be sent to the customer.
- The customer must confirm receipt of the goods.
Answer +
Correct Answer: B
Explanation +
Under the revenue recognition principle, revenue is recorded when the company fulfills its performance obligations — typically when goods are delivered or services are rendered — regardless of when cash is received.
This ensures the revenue is matched to the period in which it was earned, helping to provide an accurate view of financial performance. For example, a sale on credit is still recognized as revenue at the point of delivery.