In accrual accounting, when are revenues recognized?

• A. cash is received
• B. goods are delivered or services performed
• C. expenses are paid
• D. a sale is recorded, regardless of performance

Answer: (B)

Revenues are recognized when earned, meaning when the seller has delivered the goods or performed the services and the earning process is complete, not when cash is received. This timing ties revenue to the period in which the underlying activity occurred and supports the matching of revenues with the expenses incurred to generate them. For example, a shipment made in December with cash collected in January records revenue in December. The timing of cash receipts is not the trigger for recognizing revenue. Paying expenses has no bearing on when revenue is recognized. Recording a sale regardless of whether the performance has been completed would violate this principle, since revenue should be acknowledged only after the seller has fulfilled the performance obligation.