Revenue Recognition Under the Realization Concept

Steps:

• Identify the question's focus: recording revenue only when certain to be received.
• Recall accounting concepts: match each to revenue recognition rules.
• Eliminate unrelated concepts: business entity separates owner/business finances; going concern assumes ongoing operations; materiality ignores trivial items.
• Select the matching concept: realization requires earned and realizable revenue.

Why D is correct:

• The realization concept states revenue is recorded only when goods/services are delivered and collection is reasonably assured, ensuring certainty per accrual accounting principles.

Why the others are wrong:

• A: Business entity separates personal and business transactions, unrelated to revenue timing.
• B: Going concern assumes the business continues indefinitely, affecting asset valuation, not revenue certainty.
• C: Materiality focuses on significant information for decisions, not revenue recognition criteria.

Final answer: D