MGMT 1A Chapter Notes - Chapter 3: Market Price, Deferral, Accrual
Document Summary
Timing is everything in measuring net income and determining what time period should rev and exp be recorded. Accountants divide the economic life of biz into time periods. But many transactions affect more than one time period. Time periods usually a month or quarter (interim periods), or a year (fiscal year: calendar year (jan 1 to dec 31) Transactions recorded in the periods in which the events occur: recognize revenues when they perform services (not when receive cash, recognize expenses when incurred (rather than when paid) In accordance with generally accepted accounting principles (gaap) Record expense when they pay out cash. Does not record revenue when services are performed but has not received cash: does not match expenses with revenues. Usually used for small companies because they have few receivables and payables. Company has performance obligation when it agrees to sell goods/perform services: meeting this performance obligation = recognize revenue.
