Acct 230 1st Edition Lecture 8Outline of Last Lecture II. The Accounting Information Systema. Measuring Business ActivitiesOutline of Current Lecture III. The Financial Reporting Processa. Cash Basisb. Accrual BasisCurrent LectureII. The Financial Reporting Processa. Accounting basesi. Cash Basis Accounting1. Cash Flows & Rev/Exp recognition at the same time2. Benefitsa. Simplicityb. Accurately specifies each cash positionc. Can be used to affect tax bill3. Consa. Can distort measure of profitabilityb. Only appropriate for cash-based businessesii. Accrual Basis Accounting1. Cash Flows & Rev/Exp may not happen at the same time2. Benefits3. Consb. Revenue & Expense Reportingi. Accounting information – necessary for decision makingii. To be useful in decision making – accountants must report revenues and expenses in a way that reflects the ability of the company to create value for its ownersiii. Accrual-basis accounting records revenues when earned (the rev recognition principle)….iv. Revenue Recognition PrincipleThese notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.1. Recognize revenue when its EARNEDa. EX: Books a cruise in Nov. 2012 but it isn’t until April 2013, when is rev recognized?i. Answer: Apr 2013v. Matching Principlevi. Most Companies uses Accrual-Basis Acctg1. Recognize rev when it’s earned2. Expenses in the period incurred without regard to the time of receipt of cash paymentvii. Under cash basis1. Record rev only when they receive cash2. Record exp only when they spend
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