MGAB01H3 Chapter : Timing Issues&accural

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27 Oct 2010

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Accountants make the assumption that the economic life of a business can be divided into artificial time periods. This assumption is referred to as the time period assumption. Accounting time periods are generally one month, one quarter, or one year. Time periods of less than one year are called interim periods. An accounting time period that is one year in length is referred to as a fiscal year. The accounting period used by many businesses coincides with the calendar year. Revenue recognition principle: revenue must be recognized in the accounting period in which it is earned. The matching principle: expenses should be recognized in the same accounting period as the revenue they help to earn. If you follow the revenue recognition and matching principles, you are using the accrual basis of accounting. Transactions that . ,30,. 425,3813,3. ,89,9020398,7070. 47/0/3905074/8 in which the events occur. Revenue is recorded when cash is received and expenses are recorded when cash is paid.

Related Questions

Which statement is correct? The use of the cash-basis of accounting violates both the revenue recognition and expense recognition principles. The cash-basis of accounting is objective because no one can be certain of the amount of revenue until the cash is received. As long as management is ethical, there are no problems with using the cash-basis of accounting. As long as a company consistently uses the cash-basis of accounting, generally accepted accounting principles allow its use.

Listed below are several terms and phrases associated with basic assumptions, broad accounting principles, and constraints. Pair each item from List A with the item from List B that is most appropriately associated with it.

List A =

1. Expense recognition

2. Periodictiy

3. Historical cost principle

4. Materiality

5. Revenue recognition

6. Going concern assumption

7. Monetary unit assumption

8. Economic entity assumption

9. Full-disclosure principle

List B =

1. A common denominator is the dollar

2. All information that could affect decisions should be reported

3. Concerns the relative size of an item and its effect on decisions

4. Criteria usually satisfied for products at point of sale

5. Record expenses in the preiod the related revenue is recognized

6. The enterprise is separate from its owners and other entities.

7. The entity will continue indefinitely

8. The life of an enterprise can be divided into artificial time periods.

9. Thje original transaction value upon acquistion.

blackreindeer745

9. Under the accrual basis of accounting, revenues are recognized when they are earned and expenses are matched with revenues.

MGAB01H3 Chapter : Timing Issues&accural

MGAB01H3 Full Course Notes

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