Economic Indicators
Under accrual accounting, revenue is recognized when:
Accrual = revenue when earned. Cash = revenue when received. Most companies use accrual.
Complete Analysis & Legal Rationale
Accrual accounting recognizes revenue when it is earned (goods delivered or services performed), regardless of when cash is received. This differs from cash-basis accounting, which records revenue when cash is actually received.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
This describes cash-basis accounting.
Matches the verified teaching point in the explanation.
Sending an invoice does not trigger revenue recognition under GAAP.
Contract signing alone does not meet the criteria for revenue recognition.
Official Standard: Outline-level citation pending rule-specific upgrade. Verify against current FINRA Series 7 outline.