Question

Companies should recognize revenue when it is realized and when cash is received

A)True
B)False

Answer 1

False. Revenue should be recognized when it is earned, not necessarily when cash is received.

Step-by-step explanation:

False.

Companies should recognize revenue when it is earned, not necessarily when cash is received. This principle is known as the revenue recognition principle. According to this principle, revenue should be recognized when goods or services are provided to customers and the company has the right to receive payment for them. Even if cash is not received immediately, revenue can still be recognized when certain conditions are met, such as when the sale is considered final or when the customer is obligated to pay.

For example, a company may sell a product on credit, meaning the customer agrees to pay at a later date. In this case, even though cash is not received immediately, revenue can still be recognized at the time of sale because the company has fulfilled its obligation by providing the product to the customer.