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In accrual accounting, according to the recognition principle, revenues should be recognized when the seller performs the work promised, not necessarily when cash is received.

Answer :

In accrual accounting, in keeping with the revenue recognition principle, revenues ought to be recognized once the vendor performs the work secure, not essentially once money is received.

What is revenue recognition principle?

  • The revenue recognition idea, together with the matching principle, is the cornerstone of accrual accounting.
  • When income and costs are entered into the accounting period is decided by them both.
  • Your business will be able to accurately depict profit and loss thanks to the revenue recognition principle since revenue will be recognized when it is earned rather than when it is received.
  • Utilizing the revenue recognition idea also helps with financial forecasting, improving the precision with which your business predicts future revenues.
  • For instance, a snow removal company can clear the parking lot of a business for its standard fee of $100.

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