Question

True or false: If a project qualifies for revenue recognition over time and the project as a whole is expected to be profitable, a loss should not ever be recognized in a given period along the way.

Answer 1

False, a loss can be recognized in a period if expenses surpass revenues, even if the overall project is expected to be profitable.

Step-by-step explanation:

The statement is false. In the context of revenue recognition over time, even if a project is expected to be profitable overall, it is still possible to recognize a loss in a given financial period if expenses exceed revenues in that period.

Companies using the percentage-of-completion method for revenue recognition estimate the earnings of a project and recognize revenue and expenses in each period based on the project's progress. If the costs in a period are unexpectedly high or the progress is slower than anticipated, a loss may be reported despite the project being profitable in the long run.