Under accrual accounting, when are revenues recorded?

• A. Only when the related expenses are paid in cash
• B. Only when cash is received from customers
• C. When cash is paid to suppliers for inventory or services
• D. When they are earned, regardless of when cash is received

Answer: (D)

Verified step by step guidance

1. Understand the core principle of accrual accounting, which is to recognize revenues and expenses when they are earned or incurred, not necessarily when cash changes hands.
2. Identify that revenue recognition under accrual accounting occurs when the company has fulfilled its performance obligations, meaning the goods or services have been delivered or performed.
3. Recognize that this means revenues are recorded when they are earned, regardless of whether cash has been received from customers at that time.
4. Contrast this with cash basis accounting, where revenues are recorded only when cash is received, which is not the method used in accrual accounting.
5. Summarize that the correct approach is to record revenues when they are earned, aligning with the matching principle and providing a more accurate picture of financial performance.