If a reasonable estimate of potential refunds cannot be made, _______.
A)the firm should simply disregard any expense and handle on a case-by-case basis
B)revenue should not be recognized until the material uncertainty is resolved
C)a portion of the revenue should recognized immediately upon sale
D)no revenue recognition should occur during the life of the refund obligation

Question

Quizplus · Accepted Answer

According to accounting standards, if a reasonable estimate of potential refunds cannot be made, revenue should not be recognized until the material uncertainty is resolved. This is because revenue recognition should be matched with the expenses incurred to earn it, and if potential refunds are uncertain, it is difficult to determine the expenses associated with generating that revenue. Therefore, it is best to wait until the uncertainty is resolved to recognize the revenue.

If a Reasonable Estimate of Potential Refunds Cannot Be Made