On December 31, 2013, a company signed a one-year contract to provide services to a particular customer for $12,000. The customer will pay for the services during January 2014. Using the accrual basis of accounting, when should the company recognize revenue?

Question

Quizplus · Accepted Answer

According to the accrual basis of accounting, revenue should be recognized when it is earned, regardless of when the cash is received. In this case, the services are to be provided over the course of the year 2014, so the revenue should be recognized equally throughout the year as the services are earned. Therefore, option C is the correct choice. Options A, B, and D are not correct because they do not adhere to the accrual basis of accounting.

On December 31, 2013, a Company Signed a One-Year Contract