ECON 3A Chapter Notes - Chapter 4: Deferral, Accrual, Cash Flow
Document Summary
Accounting divides the economic life of a business into artificial time periods [periodicity assumption] Fiscal year: accounting time period that is one year long revenue recognition principle. Revenue recognition principle requires companies recognize revenue in the accounting in which the performance obligation is satisfied expense recognition principle. Let the expenses follow the revenues expense recognition tied to revenue recognition. Expense recognition principle (matching principle) efforts (expenses) matched with results (revenues) Accrual-basis accounting: transactions that change a company"s financial statements are recorded in the periods in which the events occur, even if cash was not exchanged. Companies recognize revenues when they perform the services (the revenue recognition principle), even if cash was not received. Companies recognize expenses when incurred (the expense recognition principle), even if cash was not paid. Cash-basis accounting: companies record revenue when they receive cash and record expense when they pay out cash.
