Lecture 3 Accrual - Click to edit Master subtitle style © Xiaohui Liu 2010 Lecture 3 Accrual Accounting Concept Income Measurement © Xiaohui Liu

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Unformatted text preview: Click to edit Master subtitle style © Xiaohui Liu, 2010 Lecture 3 Accrual Accounting Concept Income Measurement © Xiaohui Liu, 2010 1 © Xiaohui Liu, 2010 Cash accounting and accrual accounting How to record a transaction based on accrual accounting? ◦ Revenue recognition principle ◦ Matching principle The complete accounting procedure © Xiaohui Liu, 2010 2 OBJECTIVES – Understand: © Xiaohui Liu, 2010 Cash accounting – record transactions in financial statement only when cash changes hands ◦ Cash inflow – Revenue ◦ Cash outflow – Expense © Xiaohui Liu, 2010 3 Cash accounting vs. © Xiaohui Liu, 2010 Problems with cash accounting: 1) Cash inflow is not necessarily revenue 2) Revenue does not mean the company has got the cash 3) Cash outflow is not necessarily expense 4) Expense does not mean the company has paid the cash © Xiaohui Liu, 2010 4 Cash accounting vs. © Xiaohui Liu, 2010 Accrual Accounting – Record transactions in financial statements at the time of sale (meets revenue recognition principle) or when expense is incurred (meets matching principle) © Xiaohui Liu, 2010 5 Cash accounting vs. © Xiaohui Liu, 2010 Record revenue when ◦ Business has delivered the good or provided the service AND ◦ When the amount of revenue is measurable ($) CASH FLOW IS IRRELEVANT . © Xiaohui Liu, 2010 6 Accrual accounting © Xiaohui Liu, 2010 On January 11, 3-Flag Company provided services to Trinity, Inc. and was paid $2,000 cash. © Xiaohui Liu, 2010 7 Accrual accounting A = L + OE Rev. 2,000 Cash 2,000 © Xiaohui Liu, 2010 On January 15, 3-Flag Company provided services to Trinity, Inc. and Trinity promised to pay the $1,500 in 30 days....
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This note was uploaded on 09/13/2011 for the course AIM 6305 taught by Professor L during the Fall '11 term at University of Texas at Dallas, Richardson.

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Lecture 3 Accrual - Click to edit Master subtitle style © Xiaohui Liu 2010 Lecture 3 Accrual Accounting Concept Income Measurement © Xiaohui Liu

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