A state provides a city with a grant of $500,000 for a special "meals for the homeless" program.The city will receive payment from the state within 30 days of incurring eligible expenditures for homeless people.When should the city recognize revenues under this grant?
A)when it receives the cash payments from the state
B)at the end of the grant,when all expenditures have been incurred
C)when it sends bills to the state
D)when it incurs expenditures under the grant

Question

Quizplus · Accepted Answer

The city should recognize revenues under this grant when it incurs expenditures under the grant. This is because revenue recognition is based on the matching principle, which requires that expenses be matched with the revenues they generate. In this case, the grant is specifically for the purpose of providing meals to the homeless, so the city should recognize revenue as it incurs eligible expenses for this purpose. Waiting until it receives cash payments from the state or at the end of the grant would not accurately reflect when the revenue was earned. Sending bills to the state is also not relevant to the revenue recognition process.

A State Provides a City with a Grant of $500,000