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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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When is revenue from the sale of merchandise normally recognized?

a. When the customer takes possession of the merchandise, if sold for cash, or when payment is received, if sold on credit

b. When the customer pays for the merchandise

c. Either on the date the customer takes possession of the merchandise or the date on which the customer pays

d. When the customer takes possession of the merchandise

To determine

Revenue recognition:

Revenue recognition is referred to the time of recognition of revenue by the business firms in the books for stating the respective revenue in the statement of profit and loss in the respective year and time.

To select:

The best time of recognizing revenue of sale of merchandise.

Explanation

The revenue recognition is made at two different times which depends on the method of accounting, a business is following. In the cash-accounting method, the revenue is recognised at the point of receiving the cash and on the other hand, in the accrual-accounting method, the revenue is recognised at the point of sale i.e. when performance obligation is satisfied.

The revenue recognition is done on payment basis when sold in cash and on possession transfer basis when sold in credit. Hence, option (a) is not correct.

The revenue cannot be recognised on the point of payment by customer as may be the seller is following the accrual basis...

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