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MGAB01H3 Chapter 4.1: chapter 4.1

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ochretortoise616
28 Oct 2010
School
UTSC
Department
Financial Accounting
Course
MGAB01H3
Professor
Liang Chen

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MGAB01H3 Full Course Notes
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Related Questions

1) Define the revenue recognition principle and explain why it is important to users of financial statements.

1. Economic entity assumption 6. Matching principle
2. Going concern assumption 7. Full disclosure principle
3. Monetary unit assumption 8. Revenue recognition principle
4. Time period assumption 9. Materiality
5. Cost principle 10. Conservatism

(a) Is the rationale for why plant assets are not reported atliquidation value. (Do not use
historical cost principle.)
(b) Indicates that personal and business record-keeping should beseparately maintained.
(c) Ensures that all relevant financial information isreported.
(d) Assumes that the dollar is the “measuring stick” used to reporton financial performance.
(e) Requires that the operational guidelines be followed for allsignificant items.
(f ) Separates financial information into time periods forreporting purpose.
(g) Requires recognition of expenses in the same period as relatedrevenues.
(h) Indicates that market value changes subsequent to purchase arenot recorded in the accounts.

Research the revenue recognition accounting principle of VSOE. Provide outside resources and cite these sources.

Give an overview of how this method affects revenue recognition for companies selling bundled contracts.

How does this principle help a company report how it’s truly performing financially?