MGCR 211 Lecture Notes - Lecture 7: Accrual, Expense, Matching Principle
27 Sep 2016
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Document Summary
Record transactions only when cash paid or received. Revenue is recorded only when the cash is received. You recognize revenue even when you receive an advance from a customer - however you still have to deliver the goods, revenue is not actually earned. Expenses are recorded only when cash is paid. For the past year you never paid your electricity bills even though you used electricity all year long. Because there is no cash payment your electricity expense will look like zero even though it is not. Can lead to misleading information for decision making: Revenue and expenses can be manipulated by timing the receipt and payment of cash. Recognizes the impact of a business event as it occurs (revenues are recorded when earned and expenses are recorded when incurred) Is required because it gives a more complete picture of the business. Provides immediate feedback on how well a company is doing.
