Accrual accounting\uff0dthoery - Accrual accounting The revenue recognition and matching principles are used under the accrual basis of accounting Revenues

Accrual accountinguff0dthoery - Accrual accounting The...

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Accrual accounting: The revenue recognition and matching principles are used under the accrual basis of accounting. Revenues are recorded when earned. Expenses are recorded when incurred.Under cash basis accounting, revenue is recorded only when cash is received and expenses are recorded only when paid.Generally accepted accounting principles require accrual basis accounting rather than cash basis accounting because the cash basis of accounting often leads to misleading financial statements.Recognizing Revenues and ExpensesThe revenue recognition principal dictates that revenue be recognized in the accounting period in which it is earned.Expenses are recorded in the year incurred not paid.The revenue recognition principle andmatching principledo not apply in Cash-Basis accountingAdjusting Accrual Journal EntryPrepayment of Revenue Customer pays before service is performed creating a service liability.Prepayment of ExpenseCompany pays for a resource before the company uses it creating an asset.

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