Textbook Notes (280,000)
CA (160,000)
UTSC (20,000)
MGA (400)
MGAB01H3 (100)
Chapter

Timing Issues&accural


Department
Financial Accounting
Course Code
MGAB01H3
Professor
Liang Chen

Page:
of 2
Timing Issues
Selecting an accounting Time Period
¾ 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
Fiscal and Calendar Years
¾ Accounting time periods are generally one month, one quarter, or one year
¾ Time periods of less than one year are called interim periods
¾ An accounting time period that is one year in length is referred to as a fiscal year
¾ The accounting period used by many businesses coincides with the calendar year
Recognizing Revenues and Expenses
¾ Revenue Recognition Principle: revenue must be recognized in the accounting period
in which it is earned
¾ The Matching Principle: expenses should be recognized in the same accounting
period as the revenue they help to earn
Accrual Vs Cash Basis of Accounting
Accrual basis of accounting
¾ If you follow the revenue recognition and matching principles, you are using the
accrual basis of accounting
¾ Transactions that FKDQJHDFRPSDQ\¶VILQDQFLDOVWDWHPHQWVDUHUHFRUGHGLQWKHSHULRGV
in which the events occur
Cash basis of accounting
¾ Revenue is recorded when cash is received and expenses are recorded when cash is
paid
¾ The cash basis often leads to misleading financial statements
¾ It is not in accordance with generally accepted accounting principles (revenue
recognition & matching principle)
¾ This form of accounting is used by small businesses with little receivables and
payables
Accrual
2008
2009
Cash basis
2008
2009
Revenue
26000
0
22000
4000
Expenses
15000
0
13500
1500
Prepaid
2500
0
0
2500
www.notesolution.com
Net Income
8500
0
8500
0
www.notesolution.com