RSM219H1 Chapter Notes - Chapter 4: Accrual, Matching Principle, Financial Statement

• School: UTSG
• Department: Rotman Commerce
• Course: RSM219H1
• Professor: Ralph Tassone

Document Summary

Accounting divides the economic life of a business into artificial time periods is called the time period assumption. Accounting time periods are generally one month, one quarter, or one year. The revenue recognition principle states that revenue must be recognized in the accounting period in which it is earned. To illustrate, assume a dry-cleaning business cleans clothing on. June 30, but customers do not claim and pay for their clothes until the first week of july. Under the revenue recognition principle, revenue is earned in june when the service is performed, not in july when the cash is received. In this case, we know the amount owed and it is reasonable to assume that the customers will pick up the clothes and pay for their cleaning. At june 30, the dry-cleaning service would report a receivable on its balance sheet and revenue on its statement of earnings for the service performed.