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Chapter 4 Notes- Accrual Accounting Concepts.docx - Chapter...

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Chapter 4: Accrual Accounting Concepts (pages 162-193)Fiscal period: time period of one yearInterim period: shorter time periodsRevenue Recognition-Revenue is generally considered to be earned when goods or services are exchanged forcash or claims to cash (A/R), which increases future economic benefit-Occurs when three conditions are met:oThe sales or performance effort is substantially completeoThe revenue amount is determinable (measurable)oThe collection of the revenue is reasonable assured-In a merchandising company, revenue is recognized when the merchandise is sold (atpoint of sale)-In a service company, revenue is recognized at the time the service is performed,regardless of whether cash is received at the point of sale or delivery when all of theabove conditions are metExpense Recognition-Direct relationship between the expenses incurred and the generation of revenue(matching principle, matching expenses to revenues)-Expense recognition is not tied to the payment of cash; they are recognized whenincurred regardless of whether cash is paid or notAccrual Versus Cash Basis of Accounting-Accrual basis of accounting means that the transactions affecting a company’s financialstatements are recorded in the periods in which the events occur, rather than when thecompany actually receives or pays cash-Recognizing revenues when they are earned-Cash basis of accounting is when revenue is recorded only when cash is received, and an

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Term
Fall
Professor
N/A
Tags
Accounting, Managerial Accounting, Balance Sheet, Revenue, Revenue Recognition, Trial Balance, Expense, Generally Accepted Accounting Principles

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