If firms expect to receive cash more than one year after the time of recognizing revenue, they measure revenues at the
A)future value of the amount of cash they expect to receive.
B)present value of the amount of cash they expect to receive.
C)fair value.
D)aggregate total of the amount of cash they expect to receive.
E)net realizable value.

Question

Quizplus · Accepted Answer

When firms expect to receive cash more than one year after the time of recognizing revenue, they need to account for the time value of money by discounting the future cash flows back to their present value. This is done using an appropriate discount rate that reflects the risk associated with collecting the cash. Therefore, measuring revenues at the present value of the amount of cash they expect to receive is the appropriate choice.

If Firms Expect to Receive Cash More Than One Year