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1.
Under accrual accounting, a company recognizes revenue when _______.
The company has earned it. A company recognizes revenue when it is earned, determined by when a company sells its goods or provides its services. Under accrual accounting, revenue is not necessarily recognized when cash is received.
2.
Under accrual accounting, a company records an expense when _______.
The company has incurred it. A company records an expense when it is incurred. Under accrual accounting, expenses are not necessarily incurred when cash is spent.
3.
A company's sales, minus its cost of sales, is known as _______.
Gross profit. Gross profit is defined as sales (or revenue) minus cost of sales.
4.
Different companies recognizing revenue in different ways.
True. How a company recognizes revenue will depend on the nature of its revenue stream. For example, you might pay only once for a service at one company, but several times over time (think insurance premiums) at another place.
5.
A company's cost of sales represents all of the expenses directly incurred in _______.
Creating goods or services. Cost of sales is also known as cost of goods sold or cost of services.
