Accounting Chapter 4 - Chapter 4 Revenue Recognition...

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Chapter 4 Revenue Recognition Principle and Matching Principle How They Relate to Time * Revenue recognition principle o revenue is recognized in the accounting period in which it is earned * Matching principle o always match efforts (expenses) with accomplishments (revenues) Cash Basis vs. Accrual Basis Accounting How They Differ and Which One is Preferred * Cash Basis Accounting o Recognizes (records) revenues only when cash is received and expenses when cash is paid. o Does not satisfy the requirements of GAAP because it violates the revenue recognition principle * Accrual Basis Accounting o Requires accountants to follow revenue recognition principle and matching principle Adjusting Entries Why They Are Needed and the Major Types * Adjusting entries are made to make sure the revenue recognition and matching principles are followed o They are required every time a company prepares financial statements o They are typically classified as two types: prepayments and accruals Prepayments
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