When the product is
a. purchased.
b. manufactured.
c. inventoried.
d. sold.
The correct answer and explanation is :
The correct answer is d. sold.
Explanation:
Revenue is recognized when a product is sold, not when it is manufactured, inventoried, or purchased. This follows the revenue recognition principle in accounting, which states that revenue should be recorded when it is earned and realizable.
- Purchased: When a company purchases raw materials or goods, it records them as inventory or an expense (depending on the type of purchase). However, this does not generate revenue, as the product has not yet been sold.
- Manufactured: If the company produces the product, it is recorded as an inventory asset (raw materials, work-in-progress, or finished goods). However, no revenue is recognized at this stage because the company has not yet made a sale.
- Inventoried: When products are stored in inventory, they are classified as assets. No revenue is recognized until the products are sold.
- Sold: When a customer buys the product, revenue is recorded. At this point:
- The company earns money from the sale.
- The product is transferred to the customer.
- The sale is documented in financial statements.
This aligns with the accrual accounting method, which requires businesses to recognize revenue when a sale is made, even if the payment is received later.
