The Revenue Recognition Principle

question 157

Multiple Choice

The revenue recognition principle:

• A)Prescribes that accounting information is based on actual cost.
• B)Provides guidance on when a company must recognize revenue.
• C)Prescribes that a company report the details behind financial statements that would impact users' decisions.
• D)Prescribes that a company record the expenses it incurred to generate the revenue reported.
• E)Means that accounting information reflects a presumption that the business will continue operating instead of being closed or sold.

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Definitions:

Forward Interest Rate

Rate of interest for a future period that would equate the total return of a long-term bond with that of a strategy of rolling over shorter-term bonds.

Yield Curve

A graph that plots the interest rates at a set point in time of bonds having equal credit quality but differing maturity dates, typically used to predict economic changes.

Maturity

The fixed date in the future at which the principal amount of a bond or other financial instrument is scheduled to be repaid.

STRIPPED Cash Flows

Cash flows from an investment that have had certain elements removed, often related to interest or taxes, to reflect the underlying performance more accurately.