Matching Principle requires that expenses incurred by an organization must be charged to the income statement in the accounting period in which the revenue, to which those expenses relate, is earned. Prior to the application of the matching principle, expenses were charged to the income statement in the accounting period in which they were paid irrespective of whether they relate to the revenue earned during that period. This resulted in non recognition of expenses incurred but not paid for during
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Revenue is defined in the Framework for the Preparation and Presentation of Financial Statements (2008) as increase in economic benefits during the accounting period in the form of inflows or enhancements of assets or decrease of liabilities that result in increase in equity, other than those relating to contributions from equity participants. Revenue is measured at the fair value of the consideration received or receivable taking into account the amount of any trade discounts and volume rebates
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Chapter 5 REVENUE AND MONETARY ASSETS Changes from Tenth Edition The chapter has been updated. The SEC’s SAB101 Revenue Recognition tests have been added. Approach The sequence of transactions for accounts receivable and bad debts often causes difficulty; indeed, the time that one is sometimes forced to spend on this topic is all out of proportion to its importance. Students often do not understand why an Allowance for Bad Debts account is necessary at all; they do not grasp the notion
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CHAPTER 07 REVIEW 1. One of the most difficult issues facing accountants concerns the recognition of revenue by a business organization. Although general rules and guidelines exist, the significant variety of marketing methods for products and services make it difficult to apply the rules consistently in all situations. Chapter 7 is devoted to a discussion and illustration of revenue transactions that result from the sale of products and the rendering of services. Throughout the discussion
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CHAPTER 18 REVENUE RECOGNITION IFRS questions are available at the end of this chapter. TRUE-FALSe—Conceptual Answer No. Description F 1. Recognition of revenue. T 2. Realization of revenue. T 3. Delayed recognition of revenue. F 4. Recognizing revenue when right of return exists. T 5. Recognizing revenue prior to product completion. F 6. Use of percentage-of-completion method. T 7. Input measure for contract progress. T 8. Reporting Construction in Process and Billings
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Measurement of profit Profit = Income – Expense • Profit may be recognized as either a cash basis or accrual basis: • Cash Basis: Income (inc. revenues) is recorded in the period in which cash is received and expenses are recorded in the period in which cash is paid. - This method does not recognize income when goods are sold and services are performed on credit - Costs of goods and services consumed during the current period, but not paid for, are recognized as expenses in a subsequent period when cash
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| |= (Sales revenue - Recognized revenue + Revenue deferred during the year) + Change in accounts receivables = 76,567 + 1807 = 78,374| | | |Cash Dr. 44253 | |Deferred / unearned revenue Cr. 44253
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Chapter 5 REVENUE AND MONETARY ASSETS Changes from Tenth Edition The chapter has been updated. The SEC’s SAB101 Revenue Recognition tests have been added. Approach The sequence of transactions for accounts receivable and bad debts often causes difficulty; indeed, the time that one is sometimes forced to spend on this topic is all out of proportion to its importance. Students often do not understand why an Allowance for Bad Debts account is necessary at all; they do not grasp the notion
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year in length is A. | a calendar year. | B. | a fiscal year. | C. | an interim period. | D. | a quarterly period. | | 6. | The revenue recognition principle dictates that companies recognize revenue in the accounting period in which payment is received. A. | True | B. | False | | 7. | The revenue recognition principle dictates that revenue should be recognized in the accounting records A. | when cash is received. | B. | when performance obligation is satisfied. | C. | at the
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practices of their direct response advertisement. Short sellers began unloading stock, stating that Polymedica was misleading investors with overstated assets and revenue. According to GAAP of expense recognition, all advertising is recorded as expense. To understand these circumstances, it is necessary to define assets and expenses and their differences as it relates to this case. Assets are all things of value that the organization has the right to use including financial resources, equipment
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