ch03_part1-1

ch03_part1-1 - Chapter Chapter 3 Part I 1. Principles on...

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hapter Chapter 3 Part I i il d i d 1. Principles on recording revenues and expenses - The Revenue Principle - The Matching Principle 2. Adjusting Entries jg 3-1
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ash vs Accrual Accounting Cash vs. Accrual Accounting ash Basis Accounting Cash Basis Accounting Revenue are recorded when cash is received. •E x penses are recorded when cash is paid. Accrual Accounting Under GAAP Assets, liabilities, revenues, and expenses should be recognized when the transaction that causes them occurs, not necessarily when cash is paid or received. 3-2
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he Revenue Principle The Revenue Principle When to record (or recognize) revenue? – Revenue is recorded when it is earned – It is earned when the business has delivered a completed good or service to the customer. How much revenue to record (or recognize)? he mount equal to the sh value f the goods – The amount is equal to the cash value of the goods or services transferred to the customer. 3-3
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Examples of Revenue Recognition 3 Examples of Revenue Recognition Let’s look at the following 3 examples. ( 1) On Feb. 12, you received $300 from your client right after roviding a one our accounting consultation providing a one-hour accounting consultation. (2) On Feb. 15, you received $400 from your client for a one-hour counting consultation to be provided on March 5 accounting consultation to be provided on March 5. (3) On Feb. 22, you provided a one-hour accounting consultation for $500. Your client promised to pay you back within 30 days. Now, let’s record the above transactions. 3-4
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xample (1) sh revenue Example (1) – cash revenue On Feb. 12, you received $300 from your client right after providing a one-hour accounting consultation. eb 12 Feb. 12 Cash $300 Service Revenue $300 3-5
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xample (2) eferred revenue On Feb. 15, you received $400 from your client for a Example (2) – deferred revenue one-hour accounting consultation to be provided on March 5. Feb. 15 Cash $400 nearned Service Revenue 400 Unearned Service Revenue $400 On March 5, you provided the accounting consultation: March 5 Unearned Service Revenue $400 3-6 Service Revenue $400
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xample (3) crued revenue On Feb. 22, you provided a one-hour accounting consultation Example (3) – accrued revenue for $500. Your client promised to pay you back within 30 days. b22 Feb. 22 Accounts Receivable $500 Service Revenue $500 $ Your client paid you the full amount of $500 on March 20: March 20 Cash $500 3-7 Accounts Receivable $500
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ummary: Scenarios of Revenue Recognition Summary: 3 Scenarios of Revenue Recognition To recognize (record) a revenue is to credit the revenue. Fill in the blank for the debit side of the transaction for the above 3 examples. debit : _______________ $ credit : Revenue $ 1) Cash Revenue : providing service and receiving cash at the same time ( cash & revenue ). 2) Deferred Revenue : providing service after receiving cash ( liability & revenue ).
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ch03_part1-1 - Chapter Chapter 3 Part I 1. Principles on...

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