Revenue is earned when ________.
A) there is a binding agreement to provide goods or services
B) the journal entry to record revenue has been prepared
C) the business has received cash from the customer
D) (or as) the business satisfies each performance obligation

Question

Quizplus · Accepted Answer

Revenue is earned when the business satisfies each performance obligation, meaning that they have fulfilled their obligation to provide goods or services to the customer. This may or may not involve receiving cash at the time of the transaction or preparing a journal entry, but the key factor is that the performance obligation has been met. Option A is also partially correct, as a binding agreement is necessary to establish the terms of the performance obligation, but it alone is not sufficient to recognize revenue. Option B is incorrect, as preparing a journal entry is simply a recording of a transaction that may or may not involve revenue recognition. Option C is also incorrect, as receiving cash is only one way that the business can be compensated for satisfying the performance obligation.

Revenue Is Earned When ________