Asked by Garrett Jones on Jul 02, 2024
Verified
Which of the following situations would require the recognition of revenue to be deferred?
A) when the economic reality of a transaction represents a sale, even though title has not passed to the buyer
B) when the realizability of the receivable from a sale is not reasonably assured
C) when the risks of ownership have been transferred to the buyer
D) when the benefits of ownership have been transferred to the buyer
Revenue Recognition
The accounting principle that determines the specific conditions under which revenue is recognized as earned.
Economic Reality
The concept that financial statements and actions should reflect the true economic substance of business transactions rather than just their legal form.
Realizability
The ability or likelihood of an asset to be converted into cash or an asset expected to bring cash inflows through revenue.
- Select the proper revenue recognition techniques for differing situations.
Verified Answer
ZB
Zunaira Baig BSF 16O32456 days ago
Final Answer :
B
Explanation :
If the realizability of the receivable from a sale is not reasonably assured, revenue recognition should be deferred until the uncertainty is resolved. This could happen in situations like the customer's financial stability is unsure or the product is returnable. A is incorrect because the economic reality of a transaction represents a sale if the seller has transferred the risk and rewards of ownership and the transfer can be measured reliably, regardless of the passing of the title. C and D are incorrect because transferring the risks or benefits of ownership does not always indicate revenue deferral.
Learning Objectives
- Select the proper revenue recognition techniques for differing situations.