2017 consideration given for an asset or service is

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Finite Mathematics for the Managerial, Life, and Social Sciences: An Applied Approach
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Chapter 5 / Exercise 40
Finite Mathematics for the Managerial, Life, and Social Sciences: An Applied Approach
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2017 consideration given for an asset or service is cash, cost is measured at the entire cash outlay made to secure the asset or the service. Otherwise, cost is measured at the cash equivalent value of the consideration given or the cash equivalent value of the thing received whichever is more clearly evident. For example, if a business paid Birr 15,000 for a lot of land to be used in business operation, the land should be recorded at a cost of Birr 15,000. It does not make any difference if the buyer or any other competent outside appraiser think that the land worth more or less than Birr 15,000. Therefore, the journal entry would be recorded in the buyer‟s book as follows: Land-------------------------------------15,000 Cash--------------------------------------15,000 9. Revenue Realization Principle ………principle 5 Revenue may be recognized at point of sale, up on receipt of payment, or under the installment method. In addition for the enterprise engaged in large construction projects, revenue may be recognized under the percentage-of-completion method. Point of sale method : revenue is realized at the time title passes to the buyer. Receipt of payment method: revenue is considered to be realized at the time cash is collected, regardless of when the sale was made. Some business sell goods or services on one date but receive payment on a later date. In such cases, the revenue is recorded on the date of sale, not necessarily when the cash is received. Installment method: the buyer makes a down payment and agrees to pay the reminder in specified amount at stated interval over a period of time. Each receipt of cash is considered to be revenue and to be composed of partial amount of (1) cost of goods sold and (2) gross profit on the sale. Percentage-of-completion method: the amount of revenue to be recognized is determined on the basis of the estimated percentage of the contract that has been completed during the period. 10. Matching Principle ……………… principle 5 How well or bad the company is doing is reflected to users on the income statement prepared for a period of time. The income statement tries to measure the business‟s earnings by comparing the revenue with expenses of that period which is covered by the income statement.
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Finite Mathematics for the Managerial, Life, and Social Sciences: An Applied Approach
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Chapter 5 / Exercise 40
Finite Mathematics for the Managerial, Life, and Social Sciences: An Applied Approach
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Expert Verified
70 | P a g e Compiled by: Mekonnen K. (M.Sc in Accounting and Finance) 2017 The matching principle means that after the revenues for an accounting period have been determined, the costs associated with those revenues must be deducted in order to determine net income. The term matching refers to the close relationship that exists between certain costs and the revenue realized as a result of incurring those costs. Thus, the use of matching as a pervasive principle in the income measurement offers another practical reason for the widespread use of cost principle. For example, the expenditure for advertising is a cost to be matched against the sales that is promoted. The recognition of uncollectible accounts is also supported by the matching principle. Uncollectible arise from credit sales to customers who fail to pay their bills. To match this expense (uncollectible

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