Question

Which of the following statements is true about recording revenue?

1) Revenue is recorded when the services have been performed or goods are delivered to the customer.
2) Amounts that are recorded and reported must be based upon independent, unbiased evidence and must be able to be confirmed by a third party.
3) An item is recorded at its initial transaction price.

Answer 1

Revenue is recorded when services are performed or goods are delivered, amounts recorded must be based on evidence confirmable by a third party, and items are recorded at their transaction price. Total revenue is calculated as Price x Quantity.

Step-by-step explanation:

When discussing the recording of revenue, several principles are important for ensuring that financial records accurately reflect the transactions of a business. Firstly, revenue is typically recorded when services have been performed or goods are delivered to the customer, a principle known as the revenue recognition criterion. Secondly, the amounts recorded must be based on independent and unbiased evidence, which can be confirmed by a third party; this reflects the objectivity principle. Lastly, an item is generally recorded at its initial transaction price, reflecting the historical cost principle.

Total revenue is calculated by multiplying the price of the product by the quantity sold. This calculation of total revenue is fundamental to understanding a business's income generation through its sales activities. Revenue and its recognition are essential concepts in both financial reporting and the taxation system where governments collect taxes based on the revenues earned by individuals and businesses.