On March 1, a customer places an order for a wedding cake with Stick Boy Bakery. The customer is sent a statement on March 30 and a check is received on April 10. The cake is delivered to the wedding reception on May 2. The bakery shop follows GAAP and applies the revenue recognition principle. When is the revenue from the sale of the wedding cake considered to be recognized?

Question

Quizplus · Accepted Answer

The revenue from the sale of the wedding cake should be recognized when the cake is delivered to the wedding reception, which is on May 2. This follows the revenue recognition principle under GAAP, which states that revenue should be recognized when it is earned and the company has performed its obligations under the contract. In this case, the bakery's obligation to deliver the cake was fulfilled on May 2, so that is when the revenue should be recognized.

On March 1, a Customer Places an Order for a Wedding