Under accrual accounting, revenue earned but cash not collected is recorded how?

• A. It is recorded as revenue in the period it is earned
• B. It is recorded as revenue in the period it is earned and cash collected
• C. It is recorded as revenue at period end
• D. It is recorded as a liability until cash is collected

Answer: (A)

Under accrual accounting, revenue is recognized when earned, not when cash is collected. When revenue has been earned but cash hasn’t come in yet, you record the revenue in that period and also record an asset called accounts receivable to reflect the amount owed by the customer. The journal entry is: Dr Accounts receivable; Cr Revenue. Later, when cash is collected, you reverse the receivable: Dr Cash; Cr Accounts receivable. The other options either delay revenue recognition, treat it as a liability, or assume revenue is tied to cash collection, which isn’t how accrual accounting works.