Week 9-1

Week 9-1 - GAAPMethods Week9.1 RevenuesandCosts...

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GAAP Methods Week 9.1
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Revenues and Costs Realization and Matching    Profits are the difference between Revenues and  Expenses.  A. Revenue - according to the Realization Principle. When the reward is:  (1) Earned and (2) Collectible B.When do Costs become Expenses? (1) When they help, or (2) hinder Revenues.
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Front versus Back Office Activities    Front – operations that affect profits. Back – transactions that support  operations.
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Capitalizing  vs. Expensing a Cost If the cost of a large purchase is “expensed” then  this will lower profits “this” period. If such costs were  capitalized , then a fraction of  the cost will be “expensed” (depreciation expense)  this period and the same fraction next period, and  so on. The Aggressive choice would be to capitalizing as  many costs as  could qualify for such treatment and  do so for as many periods as arguable.
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Costs that would not be Capitalized Costs for items that would be used-up shortly. Routine costs. Costs for items that may not ( uncertainty   regarding) benefit sales in future periods Example .   A $50 Parking Pass that authorizes 10 days of parking.   This would be classified a Prep-paid Expense (current asset).  
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Week 9-1 - GAAPMethods Week9.1 RevenuesandCosts...

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