Under accrual-basis revenue recognition, when is revenue recognized?

• A. When performance obligation is satisfied and collection is reasonably assured.
• B. When cash is received from the customer.
• C. When the contract is signed.
• D. When goods are shipped and billed.

Answer: (A)

Revenue is recognized on the accrual basis when the seller has satisfied its performance obligation and collection is reasonably assured. In other words, revenue is earned when the goods are delivered or the services are performed, not when cash is received, the contract is signed, or goods are merely shipped and billed. The amount considered revenue must also be realizable, meaning that it is likely to be collected; if collectability is uncertain, revenue recognition is deferred or adjusted through bad-debt estimates. This combination ensures revenue reflects both earning and realizability, rather than just timing of cash or contractual events.