lesson 4 essay - Write a 500-1,000-word essay describing the revenue recognition principle and the matching principle When is revenue recorded When are

lesson 4 essay - Write a 500-1,000-word essay describing...

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Write a 500-1,000-word essay describing the revenue recognition principle and the matching principle. When is revenue recorded? When are expenses recorded?The revenue recognition principle informs accountants when to record revenue and the amount of revenue to record. Revenue cannot be recorded prior to it being received. The matching principle also referred to as the expense recognition period informs accountants when to record expense and howmuch expense has been incurred. The revenue recognition principle commonly used due to the way corporations conduct business. Sometimes a better price is given for a long term or bulk purchase and corporations have the money on hand to pay for an entire year’s worth of services in cash but can only receive services monthly. The company receiving the revenue needs to account for the revenue gained for the services provided this month, but what about the services for the rest of the year? How are those revenues handled? Unearned revenues are logged and transitioned against service revenue. Over time those two accounts will balance out and account for the unearned revenue. Failure to employ this rule would make the first statement after this transaction appear stellar and the rest of the year would appear lackluster. While not a horrible situation to be in, it would not adequately portray the transactions that took place. The expense recognition principle is the set of rules used for a similar concept in the expense arena. Let us use the same situation I mentioned above but let us look from the perspective of the company who paid for a year’s worth of services.

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