Question

The revenue recognition principal dictates that all types of incomes should be recorded or recognized when ___________________.

• A. Cash is received
• B. At the end of accounting period
• C. They are earned
• D. Interest is paid

Answer 1

The correct option is C They are earned

Revenue recognition is an accounting principle, which is based on accrual system of accounting. The accrual basis is the method of accounting that records revenue when it is earned and expense when they are incurred, irrespective of actual cash receipts or payments.

For example, a fixed deposit is maturing on 30th June 2017. Interest on such fixed deposit till 31st march 2017, has to be recorded in the financial year ending 31st March 2017, as it is accrued, although not received.