Florida General Contractor Practice Exam

How is revenue recorded in financial records?

1. When expenses are incurred

2. When cash is received

3. When the job is completed

4. At the end of the fiscal year

The correct answer is: When cash is received

Revenue is recorded in financial records when cash is received, reflecting the cash basis of accounting. This approach recognizes income at the point the payment is made, regardless of when the service was rendered or the product was delivered. This method is straightforward and provides a clear view of a company’s cash flow, making it easier to manage funds and meet obligations. In contrast, other options relate to timing aspects that do not correctly align with revenue recognition. While some accounting frameworks allow for revenue to be recognized when the job is completed or at the end of the fiscal year, these would typically align more with the accrual basis of accounting, where income is recognized when earned rather than when cash is obtained. Expenses incurred also do not represent revenue but rather costs that need to be matched against revenues to assess profitability. This reinforces the concept that recognition of revenue is firmly tied to the actual receipt of cash within the financial records.