Question

Generally, when is the earliest point in the sales and collection cycle in which revenue can be recognized?

A) When the sale is approved
B) When the credit approval process is finalized
C) When the cash is collected
D) When the goods have been shipped

Answer 1

Revenue can typically be recognized at the point when the goods have been shipped, as control and risk of loss pass to the buyer and the revenue becomes earned and realizable.

Step-by-step explanation:

The earliest point in the sales and collection cycle at which revenue can be recognized is generally when the goods have been shipped (D). This is based on the revenue recognition principle, which states that revenue should be recognized when it is earned and realizable, usually at the point of transfer of goods or completion of services. In the context of shipping goods, this point is often referred to as FOB shipping point, where FOB stands for 'Free On Board.' At the FOB shipping point, control and risk of loss pass from the seller to the buyer, and hence revenue can be recognized.