(Recognition of Revenue—Theory) The earning of revenue by a business enterprise 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 other situations, however, accountants have developed guidelines for recognizing revenue by other criteria, such as at the point of sale.

Instructions

(Ignore income taxes.)

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

(b) Explain in what situations it would be appropriate to recognize revenue as the productive activity takes place.

(c) At what times, other than those included in

(a) and

(b) above, may it be appropriate to recognize revenue? Explain.