COMMERCE 1AA3 Lecture Notes - Lecture 3: Trial Balance, Income Statement, Financial Statement
9 Jan 2016
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Document Summary
Record business transactions involving receipt or payment of cash. Does not record payments or purchases made on account. Is an incomplete record of company"s financial records, thus making users make poor decisions. Inconsistent with conceptual framework of accounting, not permitted by ifrs or aspe. Records transactions that involve acquiring assets, earning revenue, taking liabilities, or incurring expense when they occur. A sale on account creates accounts receivable (asset) and revenue despite receiving no cash. Purchase on account creates assets (inventory) and liability (paying supplier) Revenue is earned when ordinary business activities result in increases to both assets and shareholder"s equity (except when shareholders contribute capital to the business) Record cash value of goods/service revenue after it is earned. When paid in cash, cash assets and shareholders" equity increases ie earned revenue. Expense recognition principle: decrease in future economic benefits caused by a decrease in asset or increase in liability, expense can be reliably measured expense of cost of goods sold.
