The revenue recognition standard Revenue from Contracts with

The revenue recognition standard, Revenue from Contracts with Customers, states a specific approach should be used by companies to recognize revenue. The standard: O Requires companies to recognize revenue by using an asset-equity approach because revenue typically results in an increase in assets through the collection of cash or recognition of accounts receivable and an increase in equity through the closing of net income to retained earnings. O Requires companies to recognize revenue by using a liability-equity approach because a contract results in a company\'s promise to perform a service and the company reports that promise as a liability until the service is completed. Further, a company\'s equity is increased because net income is closed to retained earnings. Requires an asset-liability approach because an asset or a liability may stem from the terms of the contract and measuring the change in the asset or liability over the life of the contract results in a disciplined approach to measuring and recognizing revenue. O Requires an earned-realized approach because the contract will result in revenue being earned and the collection of payment from the customer will result in the realization of the earned revenue.

Solution

Solution:

The revenue recognition standard, revenue from contracts with customers states a specific approach should be used by companies to recognize revenue. The standard required an asset-liability apporach because an asset or liability may stem from the terms of the contract and measuring the change in the asset or liability over the life of the contract results in a disciplined approach to measuring and recognizing revenue.

Hence 3rd option is correct.