Question

revenue and cost are recognized during the production cycle, but gross profit recognition is deferred until the contract is completed. revenue, cost, and gross profit are recognized at the time the contract is completed. none of these answers are correct.

Answer 1

Answer:

The right statement is: " revenue, cost, and gross profit are recognized at the time the contract is completed".

Explanation:

Under GAAP, revenue is recognized when it is realized. In other words, it is only when the delivered of goods/services has been done (not when cash is received) or contract is completed that revenue should be recorded.

Also under GAAP, cost of good sold is recorded following the matching principle whose concept is when revenue is recorded; cost of good sold should be recorded subsequently at the time the contract is completed

Gross profit is determined when Revenue and Cost of good sold is recorded; thus, at the time the contract is completed.

So, The right statement is: " revenue, cost, and gross profit are recognized at the time the contract is completed".