Identifying Revenue Recognition Principles in Accounting
.docx
School
University Of Dallas**We aren't endorsed by this school
Course
ACC 112452
Subject
Accounting
Date
Dec 17, 2024
Pages
4
Uploaded by CountWolverine4786
Identifying Revenue Recognition Principles in Accounting1.According to the revenue recognition principle, when should revenue be recognized?A) When cash is receivedB) When the sale is made, regardless of cash receiptC) When goods are shippedD) When the invoice is issuedCorrect Answer:BExplanation:Revenue should be recognized when it is earned, which is typicallywhen the sale is made, regardless of when cash is received.2.Under which accounting standard is the revenue recognition principle primarily governed?A) GAAP (Generally Accepted Accounting Principles)B) IFRS (International Financial Reporting Standards)C) Both A and BD) None of the aboveCorrect Answer:CExplanation:Both GAAP and IFRS establish guidelines for revenue recognition, although there are nuances between the two frameworks.3.What is a key factor in determining when to recognize revenue from a contract?A) The customer’s payment historyB) The transfer of control of the goods or services to the customerC) The seasonality of salesD) The company’s profit margin
Correct Answer:BExplanation:Revenue is recognized when control of the goods or services is transferred to the customer, indicating that the seller has fulfilled its performance obligation.4.Which of the following would NOT typically be recognized as revenue?A) Cash salesB) Deferred revenueC) Services renderedD) Sales of goodsCorrect Answer:BExplanation:Deferred revenue represents payments received for goods or services not yet delivered and is not recognized as revenue until the obligation is fulfilled.5.When a long-term contract is involved, which method is commonly used for revenue recognition?A) Completed contract methodB) Percentage of completion methodC) Cash basis methodD) Installment sales methodCorrect Answer:BExplanation:The percentage of completion method allows for revenue to be recognized based on the stage of completion of the contract, reflecting ongoing performance.6.What is considered a performance obligation in a contract?A) The right to receive paymentB) The delivery of goods or provision of servicesC) The signing of the contractD) The receipt of an order
Correct Answer:BExplanation:A performance obligation refers to the distinct goods or services promised in a contract that the seller must deliver to recognize revenue.7.Under the new revenue recognition standards, what is the primary criterionfor recognizing revenue?A) The cash basis of accountingB) The transfer of risks and rewardsC) The transfer of controlD) Historical sales dataCorrect Answer:CExplanation:The new standards emphasize recognizing revenue when control of the asset is transferred to the customer, rather than merely transferring risks and rewards.8.In the context of revenue recognition, what does "collectibility" refer to?A) The ability to collect debts from customersB) The likelihood of a customer paying for the goods or servicesC) The speed of receivable collectionsD) The legal enforceability of contractsCorrect Answer:BExplanation:Collectibility pertains to the assessment of whether it is probable that the economic benefits associated with the transaction will flow to the seller, impacting revenue recognition.9.Which of the following scenarios would most likely trigger revenue recognition?A) A customer places an orderB) A contract is signedC) A service is completed and deliveredD) Payment is received
Correct Answer:CExplanation:Revenue is recognized when the service is completed and delivered, indicating that the performance obligation has been fulfilled.10.What is the primary objective of the revenue recognition principle?A) To enhance the accuracy of financial statementsB) To improve cash flowC) To minimize tax liabilitiesD) To increase salesCorrect Answer:AExplanation:The primary objective of the revenue recognition principle is to ensure that revenue is recognized in a way that accurately reflects the timing andamount of economic benefits earned, enhancing the reliability of financial statements.