Revenue Recognition Under Uncertainty

Steps:

• Identify transaction as sale or return: goods delivered but returnable if customer opts out.
• Note year-end status: no customer decision, so sale not confirmed.
• Recall core accounting concepts for revenue: focus on when income is reliably measurable and probable.
• Select concept preventing premature revenue booking: realisation ensures certainty.

Why C is correct:

• Realisation concept requires revenue recognition only when earned and realised (i.e., sale is final, not reversible), preventing recording of uncertain sale or return items as income.

Why the others are wrong:

• A. Matching pairs expenses with related revenues over time, not timing of revenue entry.
• B. Prudence demands caution in asset valuation (e.g., provisions for losses), but doesn't govern revenue realisation.
• D. Substance over form prioritises economic reality over legal structure, irrelevant to undecided transaction status.

Final answer: C