Revenue recognition

Long‑term construction contracts are accounted for using the percentage‑of‑completion method when the contract’s outcome can be reliably estimated, recognizing revenue and profit proportionally to work performed. The cash basis (A) ignores accruals, completed‑contract (C) is used only when estimates are unavailable, and tax basis (D) is not an GAAP revenue method, so they are incorrect.

Under ASC 606, revenue is recognized when the entity satisfies each performance obligation, i.e., transfers control of the promised goods or services to the customer. Cash receipt (choice A) is a timing issue and does not determine revenue; many sales are recognized on credit before cash is collected.

Under ASC 606, revenue is recognized when the entity satisfies each performance obligation, i.e., transfers control of the promised goods or services to the customer. A diagram for this topic isn't available yet — the worked example below walks the same reasoning step by step.

• !The cash basis (A) ignores accruals, completed‑contract (C) is used only when estimates are unavailable, and tax basis (D) is not an GAAP revenue method, so they are incorrect.

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