As drug manufacturers, such as Moderna and Pfizer, develop new drugs for the treatment of COVID-19, they must conduct human testing in order to determine the effectiveness of the drug. This is required under the Food and Drug Administration before they will allow the drug to be prescribed and sold.
Often these drug companies contract with an outside medical testing facility to administer these drugs, with close medical guidance, to monitor and report on the drugs effectiveness. The drug manufacturer will contract with the medical facility to administer the drug for a certain number of weeks to a certain number of patients. Assume that the manufacturer will pay the medical facility a fee per patient per weekly visit over a nine-month trial period.
The fee will be billed by the facility and paid by the drug manufacturer at the conclusion of the test period. When do you think that the medical facility should recognize its revenue? —–when the contract is signed, when the patient weekly visit occurs, when the drug manufacturer is billed, or when the medical facility receives the cash? Defend your selection. Why would it be important that other companies engaged in the same business report their revenue in the same manner?
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