Ch. 9 Summary - Principles of Accounting, Volume 1_ Financial Accounting _ OpenStax.pdf

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5/6/2020Ch. 9 Summary - Principles of Accounting, Volume 1: Financial Accounting | OpenStax1/39.1 Explain the Revenue Recognition Principle and How ItRelates to Current and Future Sales and PurchaseTransactionsAccording to the revenue recognition principle, a company will recognize revenue when aproduct or service is provided to a client. The revenue must be reported in the period whenthe earnings process completes.According to the matching principle, expenses must be matched with revenues in theperiod in which they are incurred. A mismatch in revenues and expenses can lead tofinancial statement misreporting.When a customer pays for a product or service on a line of credit, the AccountsReceivable account is used. Accounts receivable must satisfy the following criteria: thecustomer owes money and has yet to pay, the amount is due in less than a company’soperating cycle, and the account usually does not incur interest.When a customer purchases a product or service on credit, using an in-house account,Accounts Receivable increases and Sales Revenue increases. When the customer paysthe amount due, Accounts Receivable decreases and Cash increases.When a customer purchases a product or service with a third-party credit card, such asVisa, Accounts Receivable increases, Credit Card Expense increases, and Sales Revenueincreases. When the credit card company pays the amount due, Accounts Receivabledecreases and Cash increases for the original sales price less the credit card usage fee.9.2 Account for Uncollectible Accounts Using the BalanceSheet and Income Statement ApproachesBad debt is a result of unpaid and uncollectible customer accounts. Companies arerequired to record bad debt on financial statements as expenses.

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Term
Spring
Professor
N/A
Tags
Income Statement, Revenue, Generally Accepted Accounting Principles, Efficiency of Receivables Management, Future Sales and Purchase

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