Chapter 4 - Chapter 4 Revenue Recognition Principle = states that revenue is to be recognized in the accounting period in which it is earned(to

Chapter 4 - Chapter 4 Revenue Recognition Principle =...

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Chapter 4 Revenue Recognition Principle = states that revenue is to be recognized in the accounting period in which it is earned. (to recognize means to record a journal entry) Matching Principle = states that expenses (efforts) must be matched with revenues (accomplishments). o If a company performs services and thus earns revenue in a given accounting period, then any expenses which helped the company earn the revenue must be recorded in that same accounting period. o Critical Issue = determining when the expense makes its contribution to revenue Accrual Basis Accounting = means that transactions that change a company’s financial statements are recorded in the periods in which the events occur, rather than in the periods in which the company receives cash o Resulting from application of the revenue recognition and matching principles Cash Basis Accounting = revenue is recorded only when cash is received, and an expense is recorded only when cash is paid.

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