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Mgmt 200 Spring 2011 Chapter 3

Mgmt 200 Spring 2011 Chapter 3 - The Financial Reporting...

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1/30/2011 1 The Financial Reporting Process: Accrual Accounting, Adjusting and Closing Entries, The Financial Reports. Chapter 3 Revenue and Expense Reporting Revenue Recognition Principle – Revenues recognized when (a) realized or realizable, and (b) earned. • Matching Principle Matching Principle – Expenses incurred to generate recognized revenue be recognized in the same period. Net income (revenue – expenses) is NOT cash flow from operations. Cash versus Accrual basis • Cash basis net income – Revenues and expenses recognized only when cash is received or paid. Treatment of long-term assets Equal to Cash Flow from Operations Equal to Cash Flow from Operations (CFO) • Accrual basis net income – Revenues are recognized when earned and expenses are recognized when incurred (Matching principle).
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