Which statement describes when revenue from accrued revenue is recognized?

Which statement describes when revenue from accrued revenue is recognized?

• A. Revenue is earned and recognized even if not billed or collected yet.
• B. Revenue is recognized only when billed.
• C. Revenue is recognized only when cash is collected.
• D. Revenue is recognized at end of year.

Answer: (A)

Under accrual accounting, revenue is recognized when the seller has performed the service or delivered the goods and has a right to payment, not when cash is received. Accrued revenue specifically happens when the work is done but hasn’t yet been billed or collected. In that case, you record revenue and also recognize a receivable, so the period in which the service was provided shows revenue even if billing and cash collection occur later. This aligns with recognizing revenue when earned, rather than tying it to billing or cash collection. The other options imply revenue waits until billing, or until cash is received, or is tied to a specific year-end time, which isn’t how accrual revenue works.

Under accrual accounting, revenue is recognized when the seller has performed the service or delivered the goods and has a right to payment, not when cash is received. Accrued revenue specifically happens when the work is done but hasn’t yet been billed or collected. In that case, you record revenue and also recognize a receivable, so the period in which the service was provided shows revenue even if billing and cash collection occur later.

This aligns with recognizing revenue when earned, rather than tying it to billing or cash collection. The other options imply revenue waits until billing, or until cash is received, or is tied to a specific year-end time, which isn’t how accrual revenue works.