Under accrual accounting, when is revenue recognized?

• A. When cash is received
• B. When earned
• C. When expenses are paid
• D. When the transaction is recorded in the journal

Answer: (B)

In accrual accounting, revenue is recognized when earned—that is, when the company has delivered the goods or performed the service and the revenue is realizable. This means you record revenue at the time the performance obligation is satisfied, not when cash is received. For example, if you bill a client after completing a service, you recognize the revenue then and record a receivable; cash may come later, or you might have already collected it, but the recognition depends on earning, not cash collection. Receiving cash before earning would create unearned revenue (a liability) until the work is done. The other options describe timing tied to cash receipts, which is characteristic of cash basis, or refer to the act of recording rather than the moment revenue is earned.