A contract does not exist for purposes of applying the revenue recognition principle in all of the following cases except for when: Multiple Choice

a. The seller believes it is not probable that it will collect the amount it's entitled to receive under the contract.

b. The seller and buyer did not sign a formalized written contract.

c. The seller and buyer can terminate the contract without penalty and neither has performed any obligations under the contract.

Question

Saige Mcdonald

Law

29 July, 00:42

A contract does not exist for purposes of applying the revenue recognition principle in all of the following cases except for when: Multiple Choice

a. The seller believes it is not probable that it will collect the amount it's entitled to receive under the contract.

b. The seller and buyer did not sign a formalized written contract.

c. The seller and buyer can terminate the contract without penalty and neither has performed any obligations under the contract.

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Answers (1)

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Shyla Preston · Answer 1

b. The seller and buyer did not sign a formalized written contract.

Explanation:

Revenue Recognition Principle lays down several rules for the existence of a contract. It states that probable sum of payment should not be counted as revenue until the contract is completely done.

It also states that the seller and buyer can terminate the contract without penalty if neither has performed any obligations in the contract. The contract can be cancelled if no payments have been made.

However, it is important to identify the contract by both the seller and buyer. They should sign a formalized written contract before any work is initiated.