MGCR 211 Lecture Notes - Lecture 6: Revenue Recognition, Matching Principle, Expense
26 Sep 2016
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Document Summary
Record transactions only when cash paid or received. Revenue is recorded only when cash is received. Expenses are recorded only when cash is paid. Can lead to misleading information for decision-making: revenue and expenses can be manipulated by timing the receipt and payment of cash, can increase or decrease profit. Recognize the impact of a business event as it occurs: revenues are recorded as they are earned, expenses are recorded as they are incurred. Is required because it gives a more complete picture of the business. Provides immediate feedback on how well a company is doing. Transactions affecting a company"s financial statements are recorded in the period the events occur, rather than when cash is received or paid: revenue is recorded when earned rather than when cash is received. Receiving cash and earning revenue are 2 distinct transactions: expenses are recorded when goods or services are consumed or used. Spending cash and incurring costs are 2 distinct transactions.
