Using accrual accounting, revenue is recorded and reported only when which of the following occurs?

• A. When cash is received, regardless of when it is earned
• B. Only at the end of the accounting period after all adjusting entries are posted
• C. When both cash is received and expenses related to the sale are paid
• D. When it is earned, regardless of when cash is received

Answer: (D)

Verified step by step guidance

1. Understand the core principle of accrual accounting, which states that revenues and expenses are recognized when they are earned or incurred, not necessarily when cash is received or paid.
2. Identify that revenue recognition under accrual accounting depends on the earning process being substantially complete, meaning the company has delivered goods or services to the customer.
3. Recognize that cash receipt timing does not determine when revenue is recorded; revenue can be recorded before or after cash is received.
4. Note that adjusting entries at the end of the accounting period ensure revenues and expenses are matched to the correct period, but revenue recognition itself is based on when it is earned, not just the timing of adjustments.
5. Conclude that the correct condition for recording revenue under accrual accounting is 'when it is earned, regardless of when cash is received.'