The Revenue Recognition Principle Tells Accountants When to Record Revenue

question 47

True/False

The revenue recognition principle tells accountants when to record revenue and requires companies to follow a three step process.

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Definitions:

Merchandise

Goods procured by a business for the purpose of resale to customers.

Inventory

The total amount of goods and materials held by a company intended for sale or to be used in the production of goods sold.

Periodic Inventory System

The periodic inventory system is an accounting method where inventory is physically counted at specific intervals and adjustments are made to the inventory records accordingly.

Net Income

The total profit of a company after all expenses, taxes, and costs have been subtracted from total revenues, indicating the company's financial health over a period.