Under accrual accounting, revenue is recognized at what point?

• A. When cash is received
• B. When the product is delivered
• C. When the customer is invoiced
• D. When earned, not necessarily when cash is received

Answer: (D)

Revenue recognition under accrual accounting is based on when the seller has earned the revenue, not when cash changes hands. This means revenue is recorded when the performance obligation is satisfied and collection is reasonably assured, which often occurs at the point of transferring control of goods or performing the service. If cash is received before delivery, that money is recorded as a liability (unearned revenue) until the obligation is fulfilled. Conversely, revenue can be recognized even if payment arrives later, so the timing of cash receipt does not drive recognition.