A flower shop makes a large sale for $1,000 on November 30. The customer is sent a statement on December 5 and a check is received on December 10. The flower shop follows GAAP and applies the revenue recognition principle. When is the $1,000 considered to be earned?

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Quizplus · Accepted Answer

The revenue recognition principle requires revenue to be recognized (considered earned) when it is earned, regardless of when payment is received. In this case, the sale was made on November 30, so that is when the $1,000 is considered earned. The statement and check received on December 5 and 10 respectively are simply part of the collection process and do not impact the recognition of revenue.

A Flower Shop Makes a Large Sale for $1,000 on November