On December 31, 2012, Bosco Corporation signed a one-year contract to provide services to Cosco Company for $120,000. Cosco will pay for the services on January 1, 2013. Using the accrual basis of accounting, when should Bosco Corporation recognize revenue?

Question

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According to the accrual basis of accounting, revenue should be recognized when earned, regardless of when cash is received. In this case, Bosco Corporation signed a contract to provide services to Cosco Company for an entire year. Therefore, revenue should be recognized equally throughout the year 2013 as the services are provided. Option A is incorrect because cash receipt is not the criteria for revenue recognition under the accrual basis. Option B is incorrect because waiting until the end of the next year to recognize revenue for an entire year's worth of services does not accurately reflect when the revenue was earned. Option D is incorrect because revenue should only be recognized once the services have been provided, not when the contract is signed.

On December 31, 2012, Bosco Corporation Signed a One-Year Contract