Criteria for Revenue Recognition
Response to the following problem:
The earning of revenue by a company is recognized for accounting purposes when the transaction is recorded. In some situations, revenue is recognized approximately as it is earned in the economic sense; in others, accountants have developed guidelines for recognizing revenue by other criteria, for example, at the point of sale.
Required (ignore income taxes)
1. Explain and justify why revenue is often recognized as earned at the time of sale.
2. Explain in what situations it would be appropriate to recognize revenue as the productive activity takes place.
3. Explain at what times it may be appropriate to recognize revenue other than those included in items (1) and (2).