Revenue is recognized for accounting purposes when a performance obligation is satisfied. In some situations, revenue is recognized over time as the fair values of assets and liabilities change. In other situations, however, accountants have developed guidelines for recognizing revenue at the point of sale.

Instructions

(Ignore income taxes.)

(a) Explain and justify why revenue is often recognized at the time of sale.

(b) Explain in what situations it would be appropriate to recognize revenue over time.