Which of the following companies records revenues at the point of selling inventory, in accordance with the revenue recognition principle?

• A. A software company that recognizes revenue when cash is received, regardless of delivery
• B. A subscription service that records revenue evenly over the subscription period
• C. A retail store that sells merchandise to customers at the checkout counter
• D. A construction company that recognizes revenue only upon project completion

Answer: (C)

Verified step by step guidance

1. Understand the revenue recognition principle: This principle states that revenue should be recognized when it is earned and realizable, meaning the company has delivered goods or services and there is reasonable certainty of payment.
2. Analyze the options provided: Each company has a different method of recognizing revenue. Compare their practices to the revenue recognition principle.
3. Option 1: A software company that recognizes revenue when cash is received, regardless of delivery. This violates the revenue recognition principle because revenue should be recognized when the service or product is delivered, not just when cash is received.
4. Option 2: A subscription service that records revenue evenly over the subscription period. This aligns with the revenue recognition principle because the service is provided over time, and revenue is recognized proportionally as the service is delivered.
5. Option 3: A retail store that sells merchandise to customers at the checkout counter. This aligns with the revenue recognition principle because the revenue is recognized at the point of sale, when the merchandise is delivered to the customer and payment is made.