Question

Which of the following is not a reason why revenue is recognized at time of sale?

1) realization has occurred
2) the sale is the critical event
3) title legally passes from seller to buyer
4) all of these are reasons to recognize revenue at time of sale

Answer 1

All options given are traditional reasons for recognizing revenue at the time of sale: realization, the sale as the critical event, and legal passing of title.

Step-by-step explanation:

The question addresses the concept of revenue recognition, which is a fundamental principle in accounting that determines the specific conditions under which income becomes 'realized' on the books. In the practice of accounting, specifically under generally accepted accounting principles (GAAP), revenue is often recognized at the time of sale. However, all three reasons provided: realization has occurred, the sale is the critical event, and title legally passes from seller to buyer, are in fact traditional reasons for recognizing revenue at the time of sale. So, the answer to the question is that option 4, 'all of these are reasons to recognize revenue at time of sale', is correct.