Which of the following is not a criterion to recognize...

Name: Problem 1, Chapter 9: Principles of Accounting Volume 1: Financial Accounting
Uploaded: 2020-05-20T03:53:04-08:00
Duration: 4 min 42 s
Channel: Puneet Prajapati
Description: Which of the following is not a criterion to recognize revenue under GAAP? A. The earnings process must be completed. B. A product or service must be provided. C. Cash must be collected. D. GAAP requires that the accrual basis accounting principle be used in the revenue recognition process

Which of the following is not a criterion to recognize revenue under GAAP? A. The earnings process must be completed. B. A product or service must be provided. C. Cash must be collected. D. GAAP requires that the accrual basis accounting principle be used in the revenue recognition process

Which of the following is not a criterion to recognize revenue under GAAP?
A. The earnings process must be completed.
B. A product or service must be provided.
C. Cash must be collected.
D. GAAP requires that the accrual basis accounting principle be used in the revenue recognition process

Key Concepts

Delivery of Goods or Services

A key criterion for revenue recognition is the delivery of a product or the provision of a service. This signifies that the company has fulfilled its performance obligations, making it appropriate to record the associated revenue.

Completed Earnings Process

The concept of a completed earnings process means that a company must have performed its obligations regarding the delivery of goods or services before recognizing revenue. This criterion ensures that revenue is recorded only when it is earned, rather than merely upon receiving cash.

Cash Collection (Non-Requirement)

Under GAAP, cash collection is not a mandatory condition for revenue recognition. Revenue can be recorded on an accrual basis even if the actual cash has not been received, distinguishing accrual accounting from cash basis accounting.

Accrual Basis Accounting

Accrual basis accounting is a fundamental principle under GAAP where revenues and expenses are recognized when they are earned or incurred, rather than when cash is received or paid. This approach ensures that financial statements more accurately reflect the economic events of a period, matching revenues to the related expenses.

Revenue Recognition Criteria

The revenue recognition criteria under GAAP require that revenue be both realizable and earned. This means that a company should recognize revenue when it has substantially completed its earnings process—typically when goods or services have been delivered or rendered—and when the amount of revenue can be measured reliably.

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