Question

When may revenue be recognized?

1) Before goods are delivered
2) After goods are delivered
3) When goods are delivered

Answer 1

Revenue is typically recognized after or when goods are delivered, following the guidelines set by accounting standards such as IFRS or GAAP. Before goods are delivered, revenue recognition is less common and subject to specific criteria.

Step-by-step explanation:

Revenue can generally be recognized when it is earned and realizable. The primary conditions for revenue recognition are often outlined in the principles provided by accounting standards such as the International Financial Reporting Standards (IFRS) or the Generally Accepted Accounting Principles (GAAP) in the United States.

Revenue may be recognized:

1. After goods are delivered, when control of the goods has passed to the buyer.
2. When goods are delivered, at the point of sale or transfer of risks and rewards.

Revenue recognition before goods are delivered is generally not permissible unless certain criteria are met, for example in the case of subscription services where revenue may be recognized over the period of the subscription as the service is provided.

Therefore, the typical answer to the student's question would be options 2) After goods are delivered and 3) When goods are delivered, depending on the specific circumstances of the sale and the applicable accounting framework.