230A_ch3 - CHAPTER 3 Accounting Principles. a. Historical...

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CHAPTER 3 Accounting Principles. a. Historical cost principal —definite and objective, not subject to interpretation. b. Revenue recognition principle —revenue is recognized when the earning process is virtually complete and an exchange transaction has occurred. Revenue principle 3 conditions for revenue to be recorded 1. earnings process complete 2. exchange taken place 3. collection reasonably assured c. Matching principle —efforts (expenses) should be matched with accomplishments (revenues) . Difference between cash and accrual accounting. cash basis: revenue when cash received and expenses when cash paid Accrual basis : revenue recorded when earned and expenses when incurred, REGARDLESS OF WHEN CASH RECEIVED OR PAID Income statement explains changes in company’s net assets (i.e., total assets less total liabilities) during accounting period. Net income = Revenues – expenses o Revenues are increases in assets or decreases in liabilities over a period of time o Expenses are decreases of assets or increases of liabilities over a period
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This note was uploaded on 03/02/2012 for the course BIOLOGY 323 taught by Professor Rank during the Spring '08 term at Sonoma.

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230A_ch3 - CHAPTER 3 Accounting Principles. a. Historical...

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