In accrual accounting, when is revenue recognized?

• A. When cash is collected
• B. When goods or services are delivered and earning process is complete
• C. Only at year-end
• D. When management decides

Answer: (B)

In accrual accounting, revenue is recognized when it is earned, not when cash is received. This means revenue is recorded when goods are delivered or services are performed and the earning process is complete, with collectability reasonably assured. This timing reflects the transfer of control and the completion of the company’s performance obligation, regardless of when payment is actually collected.

For example, a service performed this month is recognized as revenue now, even if payment is received later; similarly, goods shipped and delivered are recorded as revenue at delivery. Cash collection timing or management’s year-end decision does not drive revenue recognition.