AC 101 Fall 2007 Ch 4

AC 101 Fall 2007 Ch 4 - Hughes Ayers Hoskin John Wiley &...

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Income Measurement and Reporting Chapter Four Prepared by: Sarita Sheth Santa Monica College Hughes • Ayers • Hoskin Hughes • Ayers • Hoskin John Wiley & Sons, Inc. 2004
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Chapter Four Objectives 1. Understand the accrual basis of accounting, revenue recognition, and matching concepts. 2. Explain the operating cycle. 3. Discuss revenue recognition methods and the reasons why revenue is recognized at different times for different economic events. 4. Identify the links between accrual accounting and firm valuation. 5. Construct accrual entries for both revenue and expense transactions. 6. Explain how the income statement format reflects the concept of separating transitory items from operating earnings.
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Accrual and Cash Basis Accounting Publicly traded companies are required by GAAP to use accrual accounting to report earnings. Accrual accounting recognizes economic events in the period in which they occur. Cash basis accounting recognizes economic events when cash has been exchanged. Timeline Date of delivery of goods End of Accounting period Revenue Recognized- accrual basis Revenue Recognized: Cash basis Date of Cash Collection
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FASB Criteria for Financial Statement Recognition Applied to revenues, expenses, assets, liabilities, and equity accounts: Must meet the definition of the element for the financial statement The item has a relevant attribute measurable with sufficient reliability. The information about the item is relevant and capable of making a difference in user decisions. The information about the item is reliable , faithful, verifiable and neutral.
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Concept that explains when revenue should be reported on the income statement.
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This note was uploaded on 09/30/2008 for the course AC 101 taught by Professor Ammons during the Spring '08 term at Quinnipiac.

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AC 101 Fall 2007 Ch 4 - Hughes Ayers Hoskin John Wiley &...

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