Question

Most revenue transactions pose few problems for revenue recognition because often the transaction is initiated and completed at the same time. True or False?

Answer 1

False. Some revenue transactions pose challenges for revenue recognition.

Step-by-step explanation:

False. While it is true that many revenue transactions are initiated and completed at the same time, there are also transactions that pose challenges for revenue recognition.

For example, consider a company that sells gift cards. When the customer purchases the gift card, the transaction is initiated. However, the revenue cannot be recognized until the customer uses the gift card to make a purchase. Until that point, the revenue is considered to be unearned.

Other examples include subscriptions, where revenue is recognized over a period of time, and installment sales, where revenue is recognized as each installment payment is received.