[amp_mcq option1=”Cash is received” option2=”At the end of accounting period” option3=”When they are earned” option4=”When interest is paid” correct=”option3″]
The correct answer is C. When they are earned.
The revenue recognition principle dictates that revenue should be recognized when it is earned and realized or realizable. This means that revenue should be recorded when the company has substantially completed the earning process and the revenue is reasonably certain to be collected.
Option A is incorrect because cash is not always received at the same time as revenue is earned. For example, a company may sell goods on credit, in which case it will not receive cash until after it has earned the revenue.
Option B is incorrect because the end of an accounting period is not always the same time as revenue is earned. For example, a company may earn revenue in one accounting period but not receive cash until the next accounting period.
Option D is incorrect because interest is a type of expense, not revenue.