RSM100Y1 Lecture Notes - Lecture 3: Deferral, Accrual, Cash Flow
Document Summary
Assets or services should initially be recorded at their actual cost. Bad debt: 10000 account receivable, 9500 to get (more relevant, less reliable). Revenue recognition: revenue should be recorded when it has been earned. Matching principle: expenses should be matched with revenue i. e. recognized in the same period that related revenue is recorded. It is the period you should benefit from. i. g. ,if you but an iclicker this year and you sell it next year, it is next year that the expenses is recognized. So you should record your expenses next year. Causes for differences between net income and cash flow. Non-cash items related to accrual basis of accounting. Sales made where cash payments have not been received. Payments made for prepaid expenses that haven"t been incurred . Why do people cook the books: hide losses to shrink the bonus, maintain corporation image and reputation. How do people cook the books: understated the accounts payables, minimize your income (to avoid tax)
