The revenue recognition principle requires that
A) revenue be recognized only after cash payment has been received.
B) only the amount of revenue for which cash will be received in the current fiscal year be recognized in the current year.
C) allows considerable latitude in the timing of revenue recognition.
D) revenue be recognized in the period when the firm becomes entitled to payment for goods or services delivered.

Question

Quizplus · Accepted Answer

The revenue recognition principle requires that revenue be recognized in the period when the firm becomes entitled to payment for goods or services delivered. This means that revenue should be recognized when the goods or services have been delivered or performed, regardless of when payment is received. This principle is important for ensuring accurate financial statements and matching expenses with the revenues they generate. Option A is incorrect because revenue can be recognized even if cash payment has not been received, as long as the firm is entitled to payment. Option B is incorrect because revenue should be recognized in full when earned, regardless of when cash will be received. Option C is incorrect because there are strict guidelines for when revenue can be recognized, and these guidelines do not allow for considerable latitude.

The Revenue Recognition Principle Requires That