ACC 110 Lecture Notes - Lecture 4: Accounting Information System, Trial Balance, Revenue Recognition
Document Summary
Timing issues: companies need immediate feedback on how well they"re doing. Artificial time periods: month, quarter, fiscal year (shorter periods called interim periods) Most transactions affect more than one time period. In accrual accounting we record transactions when they occur, instead of when the payment happens (cash basis) Revenue recognition: revenue is recognized when: sales or performance effort is substantially complete, the revenue amount is determinable (measurable, collection (of payment) is reasonably assured. Expense recognition: recognized when: due to ordinary activity, a decrease in future economic benefit occurs (a decrease in an asset or increase in a liability, can be measured reliably. Often (but not always) coincides with revenue recognition (known as matching) Accrual basis: transactions affecting a company"s financial statements are recorded in the period the events occur rather than when cash is received/given. In cash basis: revenue is recorded only when cash is received; expenses are recorded only when cash is paid.