Question

The revenue recognition principle: A. States that the recording of revenue should be based on reliable...

The revenue recognition principle:

A. States that the recording of revenue should be based on reliable and verifiable evidence.

B. Only requires that sales revenue must be earned before it is recorded on the income statement.

C. Only requires that sales revenue must be realized or realizable before it is recorded on the income statement.

D. States that sales revenue should be recorded when services are performed or goods are sold. E. None of the above

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Answer #1

The revenue recognition principle states that revenue should be recognized and recorded when it is realized or realizable and when it is earned. For recording revenue, collection of cash is not necessary.

According to the principle, revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received. Thus the correct option is:

C. Only requires that sales revenue must be realized or realizable before it is recorded on the income statement.

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