Question

Under most circumstances, in order to recognize revenue, what must be met?

1) The revenue must be earned
2) The revenue must be realized or realizable
3) The revenue must be recognized in the same period as the related expenses
4) All of the above

Answer 1

To recognize revenue under most circumstances, the revenue must be earned, realized or realizable, and recognized in the same period as related expenses, which means the correct answer is 'all of the above'.

Step-by-step explanation:

Revenue Recognition Criteria

Under most circumstances, in order to recognize revenue, several criteria must be met, specifically:

1. 
   
2. The revenue must be earned.
3. 
   
4. The revenue must be realized or realizable.
5. 
   
6. The revenue must be recognized in the same period as the related expenses.

Therefore, the correct answer is all of the above. To elaborate, revenue is considered earned when the company has performed the service or delivered the goods. It is realized or realizable when the payment for those goods or services is received or receivable, meaning it is assured that the payment will be collected. Moreover, revenue recognition should be aligned with the matching principle of accounting, which necessitates that it be recognized in the same period as the expenses incurred to earn that revenue.

These principles are part of the accrual accounting method and are vital in providing accurate financial statements that reflect the company's actual performance. These guidelines are in line with generally accepted accounting principles (GAAP) which govern how revenue is accounted for.