How is GAAP revenue recognized for patient services?

• A. Revenue is recognized when the service is delivered or the performance obligation is satisfied.
• B. Revenue is recognized when payment is received from the patient.
• C. Revenue is recognized when the bill is mailed.
• D. Revenue is recognized only when cash has cleared.

Answer: (A)

Under GAAP, revenue recognition uses accrual accounting. For patient services, the provider recognizes revenue when the service is delivered and the performance obligation is satisfied—the moment care is provided. At that point, the revenue is recorded, and any expected payment from patients or payers is recorded as an account receivable, with allowances for doubtful accounts as needed. Cash collection timing is separate and does not determine when revenue is recognized.

Why this fits: recognizing revenue at the point of service aligns with the transfer of control and fulfillment of the promised service, not with when a bill is issued or when cash is received. The other options reflect cash-basis timing (when payment is received, when the bill is mailed, or when cash clears), which does not meet GAAP accrual principles.