The revenue principle states that revenue should be recognized at a point when
A) an exchange transaction involving goods and services has occurred and the earnings process is essentially complete.
B) an order for shipment of a definite amount of merchandise has been received.
C) a contract between buyer and seller has been signed by both parties.
D) the seller has shipped merchandise to a customer under the terms that the customer need not pay for the merchandise until it is sold.

Question

Quizplus · Accepted Answer

The revenue principle specifies that revenue should be recognized when an exchange transaction involving goods and services has occurred and the earnings process is essentially complete. This means that the seller has fulfilled its obligations to the buyer, the price is fixed or determinable, and collection is reasonably assured. Choice B refers to receiving an order, not completing an exchange transaction. Choice C refers to signing a contract, which may or may not result in an actual exchange transaction. Choice D refers to consignment sales, where revenue recognition is delayed until the goods are sold by the customer.

The Revenue Principle States That Revenue Should Be Recognized at a Point