Under accrual accounting, revenue is generally recognized when it is:
Correct answer: B. Earned by providing goods or services
- A. Collected from the customer
- B. Earned by providing goods or services
- C. Included in the cash budget
- D. Transferred to the bank account
Explanation
Accrual accounting recognizes revenue when the earning activity occurs, regardless of when cash is collected. Cash collection is important for liquidity, but it does not by itself determine the revenue date.
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About Accruals, Prepayments and Provisions
Accruals and prepayments adjust income and expenses to the accounting period in which they are earned or incurred, following the matching principle. Provisions recognise expected obligations or losses when their amount or timing is uncertain, which distinguishes them from ordinary accruals and from general reserves.
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