Chapter 3, How Are Operating Activities Recognized and Measured?, Self-Study Quiz 1, Exercise 01

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Explanation

The revenue recognition principle is the Generally Accepted Accounting Principle (GAAP) that describes how and when the revenue should be reported and recognized in the books of accounts. The general rule of revenue recognition principle suggests that a company should recognize revenue when it transfers the title and physical delivery of the goods to the customers or the amount of revenue is entitled to be received.

 

The sales of Company P of $32,000 cash in the month of January indicates that revenue should be recognized in the same month, and it will be treated as the sales revenues of the business unit.

Verified Answer

The revenues of Company P should be categorized as sales revenues, since it forms a part of the regular sales of goods that Company P is in the business of.

 

The revenues realized in cash with an immediate transfer of goods, the amount of revenues to be recognized for the month of January is $32,000.

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