**Understanding the Current Revenue Recognition Principle**The image displays a multiple-choice question designed to test knowledge of the current revenue recognition principle in accounting. It provides four possible answers, asking which one best describes this principle.1. **Recognize revenue in the accounting period when the performance obligation is satisfied.**2. **Recognize revenue in the accounting period when cash is received.**3. **Recognize revenue when it is earned.**4. **Identify separate performance obligations in the contract.**The question focuses on determining the correct timing and criteria for recognizing revenue according to modern accounting standards, specifically those outlined by the International Financial Reporting Standards (IFRS) and Generally Accepted Accounting Principles (GAAP). The principle aims to ensure that revenue is accurately reported in relation to when a business has fulfilled its contractual obligations, rather than relying solely on cash transactions.

Revenue means the amount earned by selling the goods or services. Revenue is recognized in books of…

Answered: Which of the following best describes…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

Why Revenue is recognized when performance obligations are satisfied, not necessarily when cash is received?
Which of the following best represents the matching principle criteria?A. Expenses are reported in the period in which they were incurred.B. Expenses may be reported in a different period than the matching revenues.C. Revenue and expenses are matched based on when expenses are paid.D. Revenue is recognized when an order occurs and not when the actual sale is initiated
Under the new revenue recognition guidance in ASC Topic 606, which of the following statements is true regarding contracts with customer options? In some cases where customers have an option to acquire additional goods or services, an evaluation is required to determine if the option creates an additional performance obligation. An additional performance obligation is created if the customer could obtain the same rights to additional goods or services without entering the contract. An additional performance obligation is created if the option provides the customer a right to purchase the goods or services at the stand-alone selling price for those goods or services. It is generally not considered a performance obligation when a retailer grants a "customer appreciation dividend" to a customer.
Why does Recognizee revenue when (or as) each performance obligation is satisfied,” is important?
Why does “Identify the performance obligation(s) in the contract,” is important? Explain with example.
According to U.S. GAAP, when should revenue be recognized?a. When cash is received from the customerb. When the service is performed or the goods have been delivered to the customerc. When the goods or services have been priced and offered for saled. At the stated date in the contract
Which of the following conditions would support recognition of revenue? The seller’s price to the buyer is being negotiated. Delivery has occurred or services have been provided. Collection is possible. Significant risks and rewards of ownership of the goods will soon be transferred to the purchaser by the seller.
The five steps in the revenue recognition process are: Identify the contract(s) with customers. 2. 1. lidentify the separate performance obligations in the contract. 3. Determine the Delivery Date 4. Allocate the transaction price to the separate performance obligations. 5 Recognize revenue when each performance obligation is satisfied. O True False
The FASB has established a Five-Step process to recognize revenue. Which of the following is not one of those steps? A. Ability to identify the contract with the customer. B. Determination thatcollection of the entitled contractual consideration from the customer is probable. C. Properly identify all of the performance obligations within the contract. D. Ability to determine the transaction price. E. Properly identify all of the deliverables and allocate the transaction price to each.
If an entity recognises the revenue associated with a contract with a customer over time (rather than at a point in time), would this approach be considered more conservative than an approach that defers profit recognition until the completion of the contract (that is, at a future point in time)?
An encumbrance represents the estimated future liabilities for goods or services resulting from placing a purchase order or signing a contract. a. True b. False

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