In which situation does a company report revenue?

In which situation does a company report revenue?

• A. When products or services are sold
• B. When cash is received
• C. On a schedule
• D. At year-end only

Answer: (A)

Revenue is recognized when the company has delivered the product or performed the service and has the right to payment, not just when cash is received. This aligns with accrual accounting, where earnings are recorded at the point of sale or when the service is completed, even if payment comes later. That’s why recognizing revenue when products or services are sold is the correct approach. The other timing options—recording revenue only when cash is received, on a fixed schedule, or at year-end only—don’t fit this principle because revenue should be recorded when the performance obligation is satisfied, not strictly on cash collection or arbitrary dates.

Revenue is recognized when the company has delivered the product or performed the service and has the right to payment, not just when cash is received. This aligns with accrual accounting, where earnings are recorded at the point of sale or when the service is completed, even if payment comes later. That’s why recognizing revenue when products or services are sold is the correct approach. The other timing options—recording revenue only when cash is received, on a fixed schedule, or at year-end only—don’t fit this principle because revenue should be recorded when the performance obligation is satisfied, not strictly on cash collection or arbitrary dates.