According to the U.S. Securities and Exchange Commission, over half of the financial fraud cases involve improper recognition of revenue (Anthony, Hawkins, & Merchant, 2007, p.111). Therefore, an entity should err on the side of caution when reporting revenue. In keeping with the conservatism and realization concept, revenue should be recognized when the service has been performed. Raymond’s collected the $260,000 for promise of a two week cruise beginning January 23, 2007. Therefore, Raymond’s cannot recognize the revenue until the cruise has taken place. I do not believe the fact that passengers are entitled to a refund affects the answer. Cancellations would ultimately affect the revenue amount recorded in 2007, but does not affect the fact that no revenue should be claimed in 2006.
Further confirmation of this argument is SEC Staff Accounting Bulletin No. 101 which considers revenue to be earned when “delivery of the ordered goods has occurred or services have been rendered” (Anthony, Hawkins, & Merchant, 2007, p. 112).