income statement

What if a customer pays you in advance is that revenue

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Unformatted text preview: Income on cash basis 9 What are the posi2ves and nega2ves of the cash basis? 10 Anna’s Taqueria Example (1) Anna es2mates that the equipment he purchased will last five years and have no value aqerwards Assets = Liabili2es + Owners’ Equity 11 Anna’s Taqueria Example (2) Anna decides that there is no chance that a customer will pay $4,000 owed Assets = Liabili2es + Owners’ Equity 12 Accrual- Basis Accoun2ng •  Acknowledges that firm value can change without changes in cash. •  Recognize revenues & expenses in the period in which they occur, rather than in the period in which firms realize the cash flows Revenue recogni2on Revenue will be recognized when: 1) A firm has performed all, or most of, the services it expects to provide 2) The firm has received cash or some other asset such as a receivable, whose cash- equivalent value it can measure with reasonable precision Put simply: When the customer assumes ownership (risks) of the goods or services 13 Revenue •  Measure of economic benefit generated by sale of products or providing of services. •  What if a customer pays you in advance? Is that revenue? •  Comprised of transac2ons involving both cash and credit. •  Typically shown net of an es2mated allowance for returns and non- collec2ble accounts. 14 Recognize Revenue? Neiman Marcus uses the accrual basis of accoun2ng and recognizes revenue at the 2me it sells merchandise or renders services. Indicate the amount of revenue (if any) the firm recognizes during the months of February, March, and April in each of...
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This document was uploaded on 03/06/2014 for the course 15 15.502 at MIT.

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