Question

Which of the following statements regarding contracts is​ INCORRECT? A. A contract is an agreement between...

Which of the following statements regarding contracts is​ INCORRECT?

A.

A contract is an agreement between two parties that creates enforceable rights or performance obligations.

B.

The process of revenue recognition is based on contracts that the entity has with outsiders.

C.

Identifying the contract with the customer is the first step of the revenue recognition model.

D.

Only written contracts are valid.

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Answer #1

The correct answer is "B. The process of revenue recognition is based on contracts that the entity has with outsiders".

Reason: The process of revenue recognition is not only based on contracts that the entity has with outsiders. Revenue can also be recognized for sales made to entities within the group company. Such as Subsidiary A is selling to Subsidiary B or Subsidiary A is selling to its group companies. As long as the contract between two parties are enforceable it will be a valid contract.

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