ACC 1.28 - ACC 255 Chapter 4 Accrual Accounting Concepts I Explain the Revenue Recognition Principle and the Matching Principle A Time Period Assumption

ACC 1.28 - ACC 255 Chapter 4 Accrual Accounting Concepts I...

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ACC 255 Chapter 4 Accrual Accounting Concepts I.Explain the Revenue Recognition Principle and the Matching Principle. A. Time Period Assumption 1. Divides the economic life of a business into artificial time periods. 2. Helps to provide immediate feedback on how the business is doing. 3. Generally a month, a quarter or a year 4. An accounting time period that is one year long is called a fiscal year . B. Revenue Recognition Principle – accounts receivable 1. Dictates that revenue be recognized in the accounting period in which it is earned . a. Revenue is considered earned when the service has been provided or when the goods are delivered. C. Matching Principle – accounts payable 1. Requires that expenses be recorded in the same period in which the revenues they helped to produce are recorded. II. Differentiate Between the Cash Basis and the Accrual Basis of Accounting. A. Cash Basis of Accounting 1. Revenues record only when cash is received. 2. Expenses recorded only when cash is paid out. 3. Does not follow generally accepted accounting principles . B. Accrual Basis of Accounting 1.Adheres to the Revenue Recognition Principle . 2.Adheres to the Matching Principle .

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