On December 31,Year 1,a company signed a one-year contract to provide services to a particular customer for $12,000.The customer will pay for the services during January Year 2.Using the accrual basis of accounting,when should the company recognize revenue?

Question

Quizplus · Accepted Answer

The accrual basis of accounting requires revenue to be recognized when it is earned, which means when the services have been provided. In this case, the services will be provided throughout the year 2, so the revenue should be recognized equally throughout the year as the services are earned. Option A is incorrect because revenue should not be recognized based on when cash is received. Option B is also incorrect because revenue should be recognized as the services are provided, not after all services have been provided. Option D is incorrect because revenue should be recognized when the service is provided, not when the contract is signed.

On December 31,Year 1,a Company Signed a One-Year Contract to Provide