Revenue is earned when:
A. Contract is signed by both parties
B. The seller substantially completes performance required by an agreement
C. Buyer completes payment required under an agreement
D. The buyer accepts delivery and completes required payments.
Answer: D
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To determine when revenue is earned, we need to understand the concept of Revenue Recognition, which is an accounting principle that guides companies on when to recognize revenue from the sale of goods or services. According to this principle, revenue is generally recognized when the following criteria are met:
1. Contractual Agreement: A contract must exist between the seller and the buyer. This can be in the form of a written or verbal agreement.
2. Delivery of Goods or Services: The seller must fulfill their obligations in the contract by delivering the goods or performing the services as specified.
3. Acceptance by the Buyer: The buyer needs to accept the delivered goods or services and indicate their satisfaction.
4. Payment Completion: The buyer must also complete the required payment as specified in the contract.
Based on these criteria, we can determine that the correct answer is D: The buyer accepts delivery and completes the required payments. This represents the point at which revenue can be recognized since all the essential elements of the revenue recognition process have been fulfilled.