When should revenue be recognized under accrual accounting?

When should revenue be recognized under accrual accounting?

• A. When cash is received
• B. Upon delivery or performance
• C. On invoicing date
• D. At the end of the fiscal year

Answer: (B)

Under accrual accounting, revenue is recognized when the seller has earned it by delivering the goods or performing the service, i.e., when control transfers to the customer. This means revenue is recorded at the point of delivery or when the performance obligation is satisfied, not when cash is received. Cash collection is tracked separately as a receivable or cash inflow, but it does not drive the timing of revenue recognition. The invoicing date is simply a billing event and may occur before or after the performance is completed, while recognizing revenue at the end of the fiscal year would not reflect when the actual earning occurred if the goods were delivered or services performed in another period.

Under accrual accounting, revenue is recognized when the seller has earned it by delivering the goods or performing the service, i.e., when control transfers to the customer. This means revenue is recorded at the point of delivery or when the performance obligation is satisfied, not when cash is received. Cash collection is tracked separately as a receivable or cash inflow, but it does not drive the timing of revenue recognition. The invoicing date is simply a billing event and may occur before or after the performance is completed, while recognizing revenue at the end of the fiscal year would not reflect when the actual earning occurred if the goods were delivered or services performed in another period.