Question

When is it an appropriate accounting practice for a publicly traded corporation to use recognition in financial statements?

a. When revenue is earned
b. When cash is received
c. When expenses are incurred
d. When dividends are declared

Answer 1

The correct accounting practice for recognition in financial statements is when revenue is earned and when expenses are incurred, aligning with the accrual basis of accounting.

Step-by-step explanation:

The appropriate accounting practice for a publicly traded corporation to use recognition in financial statements is when revenue is earned and when expenses are incurred.

This practice is in accordance with the accrual basis of accounting, which dictates that financial events are recognized by matching revenues to expenses at the time in which the transaction occurs, not necessarily when cash is received or paid out. This means that revenue is recognized when earned, regardless of when the cash is received, and expenses are recognized when they are incurred, regardless of when they are paid.