Which of the following is NOT a true statement with respect to business processes in the context of revenue and expense recognition?

• A. The matching principle requires that expenses be recognized in the same period as the related revenues.
• B. Business processes are designed to ensure that revenues are recognized when earned and expenses when incurred.
• C. Proper business processes help prevent the premature recognition of revenue.
• D. Revenue can be recognized before it is earned if cash is received in advance.

Answer: (D)

Verified step by step guidance

1. Understand the context of the problem: The question is about business processes in revenue and expense recognition, focusing on the matching principle and proper timing of recognition.
2. Review the matching principle: This principle states that expenses should be recognized in the same period as the revenues they help generate. This ensures accurate representation of financial performance.
3. Analyze the role of business processes: Business processes are designed to ensure that revenues are recognized when earned (not before) and expenses are recognized when incurred. This prevents premature or improper recognition of revenue or expenses.
4. Evaluate the statement 'Revenue can be recognized before it is earned if cash is received in advance': This is NOT a true statement. Revenue recognition requires that revenue be earned, not just received in cash. If cash is received in advance, it is recorded as a liability (unearned revenue) until the revenue is actually earned.
5. Conclude that the correct answer is the statement about recognizing revenue before it is earned, as it contradicts the principles of proper revenue recognition and the matching principle.