Assume Mercy Hospital uses accrual accounting. Which statement is most correct?

• A. Patient service revenue is recognized when healthcare services are provided.
• B. Patient service revenue is recognized when cash is received.
• C. Patient service revenue is recognized at the end of the period regardless of service.
• D. Patient service revenue is recognized when an appointment is scheduled.

Answer: (A)

In accrual accounting, revenue is earned and recorded when the provider has satisfied the performance obligation—here, when the patient receives the healthcare service. So patient service revenue is recognized at the time the service is delivered, with a corresponding accounts receivable if payment will come later.

Recognizing revenue only when cash is received would be cash-basis reporting, not accrual, and would misstate earnings in the period services were provided. Recognizing revenue at the end of the period regardless of service ignores when the service actually occurred and earned revenue. Recognizing revenue when an appointment is scheduled records revenue before any service is performed, which violates the earning principle.