AIPB Mastering Adjusting Entries Practice Test

Question: 1 / 400

According to the accrual basis of accounting, when is revenue recognized?

When it is received

When it is earned

Under the accrual basis of accounting, revenue is recognized when it is earned. This means that revenue should be recorded at the time goods or services are provided, regardless of when the payment is actually received. This principle aligns with the matching concept, where revenues and related expenses are recorded in the period in which they occur, reflecting the economic reality of transactions.

For instance, if a business delivers a service in March but doesn't receive payment until April, the revenue is still recorded in March when the service was completed. This ensures that the financial statements accurately reflect the company’s performance during that specific period. Recognizing revenue when it is earned helps provide a clearer picture of a company's financial health, as it captures economic activity as it happens, rather than just when cash changes hands.

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When it is incurred

When it is paid

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