Under accrual accounting, do revenues reported on the income statement always represent cash collections?

• A. Yes, always
• B. No, not always
• C. Only when cash has been collected in advance
• D. Sometimes yes, sometimes no

Answer: (B)

In accrual accounting, revenue is recognized when the service is performed or the goods are delivered, not when cash is received. In healthcare, this means you can record revenue in the period the service was provided even if payment comes later, so accounts receivable may rise. For example, a clinic might perform a procedure in December and expect payment in January; revenue appears in December, while cash collection occurs later.

Conversely, if cash is received before the service is delivered, that cash creates a liability called unearned revenue until the service is performed, at which point revenue is recognized. So the cash received in one period does not necessarily show up as revenue in that same period.

Because the timing of revenue recognition and cash collection can differ, revenues on the income statement do not always correspond to cash collections in the same period.