RSM100Y1 Lecture Notes - Lecture 4: Deferral, Accrual, Cash Flow
Document Summary
Assets or services should initially be recorded at their actual cost. We use this principle because we want the value to be reliable. (ard to determine how much a thing is worth exactly. We sometimes have to decide between relevance vs. reliability. Bad debt is more a relevant issue, not much so reliable. Revenue should be recorded when it has been earned. Q: a customer bought a case of iphones on dec (cid:884)(cid:884) and the items were delivered. They will pay for the items on jan (cid:883)(cid:887). Expenses should be matched with revenue -i. e. recognized in the same period that related revenue is recorded. Causes for differences between net income and cash flow: Non-cash items related to accrual basis of accounting. Sales made where cash payment have not been received. Payments made for prepaid expenses that haven"t been incurred. Cooking the books (cid:523)typically, cooking the books involves augmenting financial data to yield previously non-existent earning(cid:524)
