Under the accrual basis, when should revenue and associated expenses from a December order for an event in February be recognized?

• A. Revenue and expenses December
• B. Both revenue and expenses February
• C. Revenue December, expenses February
• D. It doesn't matter which period

Answer: (B)

Under accrual accounting, revenue is recognized when the performance occurs and is earned, and expenses are recognized when the related goods or services are consumed to earn that revenue. The event happens in February, so the revenue is earned in February, and the costs to provide that event are incurred in February as well. This alignment follows the matching principle, tying both revenue and the associated expenses to the same period—the February event. If cash changes hands in December, it would be recorded as unearned revenue or a prepaid expense, but the actual recognition for the revenue and costs related to the February event remains in February.