Florida Building Contractor Business/Finance Practice Exam

Under the accrual basis of accounting, revenues are recognized when:

1. Cash is received from customers

2. Services or goods have been delivered

3. Invoices are sent out

4. Payments are expected

The correct answer is: Services or goods have been delivered

Under the accrual basis of accounting, revenues are recognized when services or goods have been delivered. This accounting method focuses on the timing of economic events rather than the movement of cash. According to the accrual principle, revenue is recorded when it is earned, meaning that a company must recognize income once it has provided the service or delivered the product, regardless of when cash is actually received. This principle ensures that financial statements reflect the actual performance and financial position of a business during a specific period, allowing for a more accurate assessment of profitability. By recognizing revenue at the point of delivery, businesses align their income with the expenses incurred in generating that income, which is essential for period matching and accurately representing financial outcomes. The focus is on the completion of the earnings process rather than cash transactions, which is essential for effective financial analysis and reporting.