ACCT 101 Chapter Notes - Chapter 4: Deferral, Accrued Interest, Financial Statement

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ivoryhornet946

29 Aug 2016

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The revenue recognition principle: requires that companies recognize revenue in the accounting period in which the performance obligation is satisfied. The expense recognition principle (matching principle)- dictates that efforts (expenses) be matched with results (revenues) Ex: the expense should be reported in the same period in which it recognizes the service revenue. Accrual vs cash basis of accounting: accrual-basis accounting- transactions that change a company"s financial statements are recorded in the periods in which the events occur, even if cash was not exchanged. Companies recognize revenues when they perform the services (revenue recognition principle) even if cash was not received. Companies recognize expenses when incurred (expense recognition principle) even if cash was not paid: cash-basis accounting- companies record revenue when they receive cash. Fails to record revenue for a company that has performed services but has not yet received the cash. As a result, does not match expenses with revenues.

Related Questions

Which of the following statements about accrual-basis accounting is not true?

a. It uses the revenue recognition principle.

b. It uses the expense recognition principle

c. It is required for external accounting reports.

d. It requires the timing of cash receipts to be in the same period as revenues are recognized.

cyanantelope77

1. Economic entity assumption 6. Matching principle
2. Going concern assumption 7. Full disclosure principle
3. Monetary unit assumption 8. Revenue recognition principle
4. Time period assumption 9. Materiality
5. Cost principle 10. Conservatism

(a) Is the rationale for why plant assets are not reported atliquidation value. (Do not use
historical cost principle.)
(b) Indicates that personal and business record-keeping should beseparately maintained.
(c) Ensures that all relevant financial information isreported.
(d) Assumes that the dollar is the âmeasuring stickâ used to reporton financial performance.
(e) Requires that the operational guidelines be followed for allsignificant items.
(f ) Separates financial information into time periods forreporting purpose.
(g) Requires recognition of expenses in the same period as relatedrevenues.
(h) Indicates that market value changes subsequent to purchase arenot recorded in the accounts.

brownhound203

1. Undercash-basis accounting, when is revenue recorded? When is itrecorded under accrual-basis accounting?

2. Under accrualaccounting, when is revenue considered earned?

3. If amembership represents an advance payment for services provided,when is it recognized as revenue under the accrual basis, and whatis it called?

4. Why isinsurance expense spread over multiple periods even though thepolicy coverage is paid in advance?

5. At the end ofthe month for Silverâs Gym, what entries need to be made under thecash basis of accounting for wages that have not yet been paid?What entries need to be made under the accrual method?

6. Why is itimportant to match expenses and revenues to reflect the performanceof a business over a particular time period?

7. When mightthe use of cash basis accounting overstate the actual profitsearned by Silverâs gym? When might it understate the actual profitsearned?

8. Which basisof accounting is in accordance with GAAP for large companies?

puceeagle823

ACCT 101 Chapter Notes - Chapter 4: Deferral, Accrued Interest, Financial Statement

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