Chapter 2

Accounting Under Ideal Conditions

26. Refer to the revenue recognition practices of Qwest Communications outlined in Theory in Practice 1.1

Use the concept of relevance to argue that firms should record revenue as earned as early as possible in their operating cycles. Was Qwests revenue recognition policy relevant? Explain.(Norma)

Firms should record revenue as early as possible because

Use the concept of reliability to argue that firms should wait until the significant risks and rewards of ownership are transferred to the buyer, and there is reasonable assurance of collection, before recording revenue. Was Qwests revenue recognition policy reliable? Explain. L(Norma)

Firms should wait to record revenue because

When is revenue recognized under ideal conditions? Why?

Under ideal conditions, revenue is recognized