Under accrual accounting, revenue is recognized when:

• A. When cash is received.
• B. When earned.
• C. When the invoice is paid.
• D. At the end of the fiscal year.

Answer: (B)

Under accrual accounting, revenue is recorded when it is earned, not when cash is received. This follows the idea that earnings are recognized as soon as the seller has satisfied its performance obligation—delivering goods or performing a service and having the amount collectible reasonably assured. Cash collection and invoice payments are separate events that affect cash flow and accounts receivable, not the timing of revenue recognition. Revenue isn’t tied to an end-of-year date; it’s recognized when the earning process is complete, even if cash arrives later. For example, delivering a service in December recognizes the revenue in December, even if payment is received in January.