This document discusses indicators of potential revenue recognition issues. Optimistic estimates in accrual accounting can indicate a revenue recognition problem, as accrual accounting requires reasonable estimates rather than overly optimistic projections. Receiving payment before delivery of goods or services violates the revenue recognition principle of not recognizing revenue until earned. Receiving payment after completion could also indicate the revenue was not properly recognized in the correct period under accrual accounting rules.

1. Which of the following is an indicator of a revenue recognition issue?
Select one:
A. Optimistic estimates in accrual accounting
B. Receipt of payment prior to delivery
C. Receipt of payment after completion of service or delivery of goods
D. Sale to end-customer with no right of return
Solution
A . Optimistic estimates in accrual accounting .
Please find below some of optimistic estimate made in accrual accounting
1. % of completion recognised in respect of long term contracts
2. Sale of Goods on CIF basis where revenue is recognized up on the delivery of goods.
3.Single transaction involving multiple componets ie Sale of goods accompanied with
installation , where installation is not immaterial with respect to fair value of goods.