Florida General Contractor Practice Exam

Which of the following statements is false according to the Builder's Guide to Accounting?

1. Revenue can only be recognized when received.

2. All expenses are deducted at the end of the year.

3. Cash method allows for expense recognition as cash is paid.

4. Accrual method recognizes income when earned.

The correct answer is: Revenue can only be recognized when received.

The statement indicating that revenue can only be recognized when received is false because in accounting practices, particularly under the accrual method, revenue is recognized when it is earned, not necessarily when cash is received. This means that if a service has been performed or goods have been delivered, revenue should be recorded at that point, regardless of when payment is received. The other statements reflect accurate principles of accounting. Expenses being deducted at the end of the year applies to the cash method, where expenses are recorded when cash is paid. The cash method indeed allows for expense recognition as cash is paid, which is a key characteristic of this method. Meanwhile, the accrual method's recognition of income when earned aligns with generally accepted accounting principles (GAAP), emphasizing that businesses should report revenues and expenses in the period in which they are incurred, making financial statements more accurate.