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11 - The matching principle to the extent that we can...

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Financial Accounting Notes 2/1/11 Balance Sheet Debit Credit Assets Liabilities must have monetary value any right that  we  ust have a right to it that others don't have others have  to our assets Equity the value of  By definition Equity = Assets - Liabilities  our right to Assets = Liabilities + Equity our assets Income Statement Expenses Revenue Revenue - Expenses = Income Currently, we recognize revenue when it is "earned AND realizable" Th current definition is not working The new defintion will be based on increasing equity without a company's owners contributing money or assets Expenses decrease in equity for reasons other than owners taking money out of a  company We recognize expenses by using the "matching" principle
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Unformatted text preview: The matching principle: to the extent that we can associate expenses with revenue , we recognize the expenses at the same time that we recognize the revenude Expenses that cannot be asscociated with specific revenue is recognized as it is incurred We don't necessarily recognize revenue and expenses when we pay and are paid If we recognized revenue and expenses as we pay and are paid, we would be using the "cash" basis of accounting Recognizing revenue when it is earned and realizable, and applying the matching principle to recognize expenses is called the "accural" basis of accounting...
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