accrual accounting

accrual accounting - AccrualAccounting Dr.JamesGong

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Click to edit Master subtitle style Accrual Accounting Dr. James Gong
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Today’s Agenda n Case 1 discussion n Accrual accounting
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n Revenues are  “recognized”  (recorded) as soon as they are both: n Earned , meaning the seller has performed a service or  conveyed an asset to the buyer; n Measurable , meaning the value to be received for that service  or asset is reasonably assured and can be measured with a  high degree of reliability. n Expenses are  expired  costs —the assets used up to produce  revenues—and are recorded in the same accounting period in  which the revenues are recognized. Expenses are  “matched  to  Accrual Accounting
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Understanding Accrual  Accounting n Accrual accounting decouples measured earnings (i.e.,  revenues minus expenses) from the amount of cash  generated from operations. n Accrual accounting revenues generally do not  correspond to cash receipts for the period, nor do  accrual expenses always correspond to cash outlays  for the period. n Accrual accounting can produce large discrepancies  between measured earnings and the amount of cash 
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Practice Problem n In January 2008, Canterbury sells a three-year subscription  to its quarterly magazine to 1,000 customers. n Customers pay the full subscription price ($300 = 12 x $25)  up front. n
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accrual accounting - AccrualAccounting Dr.JamesGong

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