Question

A customer purchased a drill press on November 14 on account from Sears. The drill press was delivered two weeks later. The customer paid for the drill press on December 5. When should Sears record the revenue for this transaction according to the revenue recognition principle? A. December. B. Evenly in each of the two months. C. November. D. One-third in November and two-thirds in December.

Answer 1

Answer:

C. November

Explanation:

The revenue recognition principle is an accounting principle that requires revenue to be recorded only when it is earned, not when the related cash is collected. It is a cornerstone of accrual accounting together with the matching principle. According to the principle, revenues are recognized when they are realized or realizable, and are earned (usually when goods are transferred or services rendered), no matter when cash is received. It means that revenues or income should be recognized when the services or products are provided to customers regardless of when the payment takes place. And since the drill press was delivered two weeks after November 14, the Sear will record the revenue for this transaction in November according to this principle.