FAR topic guide

Revenue recognition for FAR CPA candidates.

Revenue questions often test whether you can separate contract facts from cash movement and recognize revenue when the performance obligation is satisfied.

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By World of Accountants editorial team. Last reviewed August 23, 2026. World of Accountants is independent and not affiliated with the AICPA, NASBA, Becker, NINJA, UWorld, Gleim, or other CPA review providers.

FAR sample question

Test the rule before you leave this FAR guide.

Read the topic explanation, then use this real FAR question to check whether the controlling fact is sticking.

FAR-000001FAR-IRevenue recognition

During the year-end close for a manufacturer, an entity receives an advance payment for goods it has not yet shipped. What should be recorded initially?

A.A contract liability should be recorded until the promised goods are transferred.
B.Revenue should be recognized immediately for the full cash receipt
C.A receivable should be recorded even though cash was received
D.No liability should be recorded until shipment because the performance obligation has not yet been satisfied

Answer: A. A contract liability should be recorded until the promised goods are transferred.

A contract liability should be recorded until the promised goods are transferred.

Why the other answers are wrong

B. Cash collection alone does not establish revenue recognition. Because the goods have not been transferred, the receipt creates an obligation to perform.
C. A receivable is not the right starting point because the entity already received cash. The unresolved issue is the obligation to deliver goods.
D. This choice notices that performance has not occurred, but reaches the wrong accounting result. The unperformed obligation is exactly why a contract liability is recorded.

Core idea

Start by identifying the contract, the performance obligations, the transaction price, allocation, and the point or period when control transfers to the customer.

What FAR likes to test

Expect facts about multiple deliverables, discounts, variable consideration, collectibility, principal-versus-agent presentation, and whether revenue is recognized over time or at a point in time.

Common miss

Candidates often follow the invoice, cash receipt, or shipment date without asking what was promised and when control actually transferred.

How to practice

For each revenue question, underline the promise to the customer, the payment fact, and the event that satisfies the performance obligation.

How to use this guide

Turn revenue recognition for far cpa candidates into a short practice loop.

Read the core idea first, then answer a small set while the rule is still active in your head. The goal is to see whether you can recognize the tested fact without rereading the guide.

Spot the tested fact

Before choosing an answer, name the one fact that should control the result. FAR questions often become easier once the controlling fact is separated from background detail.

Explain the distractor

When an answer is wrong, say why it is wrong in one sentence. That habit turns answer review into durable exam judgment instead of memorizing a letter.

Retest later

Bookmark misses and revisit them after another study session. A topic is stronger when you can recover it after time has passed.

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Practice loop

Use the topic, then answer questions while the idea is fresh.

Short practice sets are enough to expose whether the rule is sticking.

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