Which of the following conditions will cause revenue to be recognized over time according to the revenue recognition principle?

• A. The entity transfers control of the good or service at a single point in time.
• B. The customer simultaneously receives and consumes the benefits provided by the entity's performance as the entity performs.
• C. The entity has an unconditional right to receive payment before any work is performed.
• D. Payment is received in advance, regardless of when the performance obligation is satisfied.

Answer: (B)

Verified step by step guidance

1. Understand the revenue recognition principle: Revenue is recognized when the performance obligation is satisfied, meaning the entity has transferred control of the good or service to the customer.
2. Identify the key condition for recognizing revenue over time: Revenue is recognized over time if the customer simultaneously receives and consumes the benefits of the entity's performance as the entity performs.
3. Evaluate the options provided: The first option refers to recognizing revenue at a single point in time, which does not meet the criteria for over-time recognition. The second option aligns with the principle of over-time recognition as the customer receives and consumes benefits simultaneously.
4. Analyze the third option: An unconditional right to receive payment before work is performed does not necessarily indicate that revenue should be recognized over time. It may relate to upfront payments but does not satisfy the performance obligation criteria.
5. Consider the fourth option: Payment received in advance does not determine the timing of revenue recognition. Revenue is recognized based on the satisfaction of performance obligations, not the timing of payment.