Acct 230 1st Edition Lecture 10 Outline of Last Lecture II The Accounting Information System a Measuring Business Activities Outline of Current Lecture III The Financial Reporting Process a Cash Basis b Accrual Basis Current Lecture II The Financial Reporting Process a Accounting bases i Cash Basis Accounting 1 Cash Flows Rev Exp recognition at the same time 2 Benefits a Simplicity b Accurately specifies each cash position c Can be used to affect tax bill 3 Cons a Can distort measure of profitability b Only appropriate for cash based businesses ii Accrual Basis Accounting 1 Cash Flows Rev Exp may not happen at the same time 2 Benefits 3 Cons b Revenue Expense Reporting i Accounting information necessary for decision making ii 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 owners iii Accrual basis accounting records revenues when earned the rev recognition principle iv Revenue Recognition Principle These 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 EARNED a EX Books a cruise in Nov 2012 but it isn t until April 2013 when is rev recognized i Answer Apr 2013 v Matching Principle vi Most Companies uses Accrual Basis Acctg 1 Recognize rev when it s earned 2 Expenses in the period incurred without regard to the time of receipt of cash payment vii Under cash basis 1 Record rev only when they receive cash 2 Record exp only when they spend cash
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