Under accrual basis accounting, when is revenue recognized?

• A. When cash is received
• B. When earned or realized, regardless of cash receipts
• C. Only at the end of the period
• D. When expenses are matched

Answer: (B)

Under accrual accounting, revenue is recorded when the company has earned it or when it is realizable and measurable, regardless of when cash is received. This means revenue is recognized as soon as the goods are delivered or the services are performed and there is a reasonable expectation of payment, not waiting for cash to arrive. If cash is collected before earning the revenue, it is recorded as unearned revenue (a liability) until the obligation is satisfied. This contrasts with recognizing revenue only upon cash receipt (cash basis), and it aligns with matching expenses to the revenues they help generate.