Textbook Notes (363,062)
Canada (158,169)
MGAB01H3 (126)
Liang Chen (50)
Chapter 4.1

chapter 4.1

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University of Toronto Scarborough
Financial Accounting
Liang Chen

Chapter 4 Timing Issues Because business generally cannot end its operations and prepare its financial statements, it poses quite a few problems. Accounts are not properly stated at their current value, which will lead to K]Z]L]}L}Z }KL[Z]LL ]o}Z]]}L: ounting divides the economic life of a business into artificial time periods, with accordance to the time period assumption. Revenue Recognition Principle The revenue recognition principle states that revenue must be recognized in the accounting period in which it is earned. In merchandising, revenue is earned when merchandise is sold. In service, revenue is considered earned when the service is performed. Matching Principle L }2L]]L2LZZ7Z]Koo]Z}oo}9^oZLZZ}oo}ZLZ_:@ZZLZ recognition is tied to revenue recognition. The critical issue in expense recognition is determining when the expense contributes to revenue. The practise of expense recognition is referred to as the matching principle because it states that efforts (expense) must be matched with accomplishments (revenues) wherever this is possible. Accrual versus Cash Basis of Accounting The combined application of the revenue recognition and mat
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