Final answer:
In certain circumstances, companies can recognize revenue prior to completion and delivery of the product. This is known as revenue recognition.
Step-by-step explanation:
In certain circumstances, companies can recognize revenue prior to completion and delivery of the product. This is known as revenue recognition. Revenue recognition is based on the Generally Accepted Accounting Principles (GAAP) and is determined by the accrual accounting method.
For example, if a company sells a product under a long-term contract and meets specific criteria outlined in GAAP, they can recognize revenue before completing the project or delivering the final product. This can occur when there is persuasive evidence of an arrangement, the price is fixed and determinable, delivery has occurred or services have been rendered, and collectability is reasonably assured.
However, it's important to note that revenue recognition rules can be complex and may vary depending on the specific circumstances and industry. Companies must carefully assess the criteria and consult professional accountants or auditors to ensure compliance with accounting standards.