Under accrual accounting, when should revenue be recognised?

• A. When earned and expenses when incurred, regardless of cash
• B. When cash is received
• C. When invoices are issued
• D. When goods are delivered

Answer: (A)

In accrual accounting, the focus is on when the business has actually earned the revenue and incurred the expenses, not when cash moves. Revenue is recognized when the goods or services have been delivered and the business has a right to payment—i.e., it has fulfilled its part of the deal. Expenses are recognized in the period they help generate revenue, regardless of when cash is paid.

Recognizing revenue only when cash is received is the cash basis approach, which doesn’t align with accrual accounting. Issuing an invoice signals an intent to be paid but doesn’t by itself prove that the revenue has been earned. While delivering goods often marks the point at which revenue is earned, the core rule is that revenue is recognized when it’s earned, not merely when delivery occurs or when cash arrives.