Under accrual basis accounting, when are revenues recognized?

• A. When cash is received
• B. When earned
• C. When expenses are paid
• D. At year-end only

Answer: (B)

Under accrual basis accounting, revenues are recognized when earned, not when cash is received. This follows the revenue recognition principle: revenue is recorded when the company has delivered the goods or performed the service and the amount is measurable and collectible. So if you finish a service in one period but receive payment later, the revenue is still recognized in the period the service was completed. Cash receipts affect cash flow and accounts receivable, but not the timing of revenue recognition. The other options don’t fit because revenue isn’t tied to when cash is collected, paid expenses don’t determine revenue timing, and revenue isn’t recognized only at year-end.