When should David report revenue from catering an event that has been paid for in advance?

The appropriate time for reporting revenue is governed by the recognition principle, part of accrual accounting. Revenue should be recognized when it is earned, which typically coincides with the delivery of goods or services, rather than when payment is received. In the case of David, if he is catering an event scheduled for February, the revenue from this service should be reported in February, as that is when the services will be rendered.

Expenses related to the event should also be recorded when they are incurred, typically when the event takes place. This means that both the revenue and the corresponding expenses for the catering services would be recognized in February, reflecting the period in which the service is actually provided. Thus, the alignment of revenue and expenses during the same period enables accurate financial reporting and compliance with accounting standards.

The option suggesting reporting both in December may imply that the revenue can be recognized simply because payment was received in advance, which does not align with the timing of when the service is provided. The possibility of selecting when to record revenue and expenses disregards the structured principles of accrual accounting and the matching principle. Recording in December contradicts the requirement that both should be reported in February when the event occurs and the service is delivered.