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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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What does the phrase, "Revenue is recognized at the point of sale" mean?

a. Revenue is recorded in the accounting records when the cash is received from a customer and reported on the income statement when sold to the customer.

b. Revenue is recorded in the accounting records and reported on the income statement when goods are sold and delivered to the customer.

c. Revenue is recorded in the accounting records when the goods are sold to a customer and reported on the income statement when the cash payment is received from the customer.

d. Revenue is recorded in the accounting records and reported on the income statement when the cash is received from the customer.

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 meaning of the phrase given, “Revenue is recognized at the point of sale”.

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 point of sale but the point of sale does not occur on the time of sale instead it occurs at the delivery of goods to the customer after sale. Hence, option (a) is not correct.

The revenue is recognised on the point of sale i.e...

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