COMM 211 Lecture Notes - Lecture 3: Deferral, Deferred Income, Matching Principle
Document Summary
Record transactions when cash is received or paid. Revenue is recognized when cash is received. Expense is recognized when cash is spent. Disadvantage: no matching of revenue and expenses. Advantage: allows for matching of revenue and expenses. Defer the recognition of revenue or expense to a future period despite receiving the cash. Deferred expense is called prepaid expense: record an asset on the sfp and recognize the expense once it is incurred ex. Deferred revenue is called deferred or unearned revenue: record a liability on the sfp and recognize the revenue once earned. On august 1, prairies consultants prepaid insurance for august through december for ,000. On july 1, a company received ,000 from a client for services to be rendered in july and august. Recognize revenue or expense despite not receiving or paying cash. On january 1, a company performed services on account for ,000. On january 1, a company borrowed ,000 from the bank.