Which statement about revenue recognition is true?

The statement that revenue should not be recognized for work that is to be performed in subsequent accounting periods is accurate because revenue recognition principles dictate that income is recognized when it is earned and realizable. The performances of the required tasks must be completed or substantially completed before revenue can be recognized, meaning that future performance does not meet the criteria for revenue recognition.

This aligns with accounting standards such as the Generally Accepted Accounting Principles (GAAP) and the International Financial Reporting Standards (IFRS), which emphasize that revenue is recognized when control of the goods or services has transferred to the customer, typically occurring when the work is done, not before. Recognizing revenue in anticipation of future performance could mislead stakeholders about a company’s actual earnings and financial health.

Recognizing revenue for work that’s planned for the future contradicts these principles, leading to distorted financial statements. Consequently, this solid understanding of revenue recognition is crucial for ensuring accurate financial reporting and maintaining the integrity of financial records.