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In GAAP there are two basic accounting principles. The first being Accrual (which is the most commonly used) and the second being Cash Basis.
Neither stipulate that income has to be "earned" before it is reported. The difference in the two are:
Accrual basis accounting transactions are reported as they happen.
1. For example, a contractor gets paid to remodel a home, he's received the money for the job, but hasn't earned it, completed the work. Accrual account states that this transaction be recorded as a liability (unearned revenue) to the company until the revenue is earned.
2. Say the opposite is true in accrual accounting, the contractor finished the remodeling but isn't expected to be paid for it until later in the future. The company records this transaction as an asset (account receivable).
Now let's look at Cash Basis: Cash basis states that a transaction didn't actually happen until such time the money is received, period. Take example 1, a transaction in cash basis accounting is recorded because money was actually received, even though it hasn't been earned.
Example number 2 however, would be no recording of the transaction, although the job was finished, no money exchanged hands as of yet.
This is why many businesses use accrual accounting. Only small companies that generally deal in cash or small amounts tend to lean toward cash basis accounting and it is still not recognized as a very good method of accounting by the GAAP.
What else can I help you with?
The accounting principle that requires revenue to be reported when earned is the?
revenue recognition
The revenue recognition principle dictates that revenue should be recognized in the accounting records?
The revenue recognition principle dictates that revenue should be recognized in the accounting records when it is earned.
The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the?
The accruals concept, otherwise known as the matching concept as it's purpose is to match expenses and revenue to each other in the correct accounting period.
Which of the following are in accordance with generally accepted accounting principles?
the revenue recognition principle dictates that revenue should be recognized in the accounting records?
What accounting concepts stipulates that accounting profit is the difference between revenue and expenses?
The accounting concept that stipulates accounting profit as the difference between revenue and expenses is the matching principle. This principle requires that expenses be matched with the revenues they help generate within the same accounting period, ensuring that financial statements accurately reflect the company's performance. Thus, accounting profit is calculated by subtracting total expenses from total revenues, providing a clear picture of profitability.
The accounting principle that requires revenue to be reported when earned is the?
revenue recognition
The revenue recognition principle dictates that revenue should be recognized in the accounting records?
The revenue recognition principle dictates that revenue should be recognized in the accounting records when it is earned.
What is the different between accounting principle and accounting principle?
Matching principle is the base of accrual accounting system which tells that each revenue earned should be matched with cost spent to earn that revenue so accrual account and matching principle is not different but same thing.
The broad principle that requires expenses to be reported in the same period as the revenues that were earned as a result of the expenses is the?
The accruals concept, otherwise known as the matching concept as it's purpose is to match expenses and revenue to each other in the correct accounting period.
Which of the following are in accordance with generally accepted accounting principles?
the revenue recognition principle dictates that revenue should be recognized in the accounting records?
What accounting concepts stipulates that accounting profit is the difference between revenue and expenses?
The accounting concept that stipulates accounting profit as the difference between revenue and expenses is the matching principle. This principle requires that expenses be matched with the revenues they help generate within the same accounting period, ensuring that financial statements accurately reflect the company's performance. Thus, accounting profit is calculated by subtracting total expenses from total revenues, providing a clear picture of profitability.
What accounting assumption or principle is being violated if a company provides financial reports in connection with a new product introduction?
If a company provides financial reports in connection with a new product introduction without adhering to the revenue recognition principle, it may be violating this accounting principle. This principle requires that revenue be recognized when it is earned, rather than when it is anticipated or projected, ensuring that financial statements reflect actual financial performance. Additionally, if costs associated with the new product are reported prematurely, it could violate the matching principle, which states that expenses should be matched with the revenues they help to generate.
When using accrual accounting revenue is recorded and reported only when?
When it is earned.
Which GAAP principle states that all expenses incurred while earning revenue should be reported in the same year as the income is reported?
The GAAP principle that states all expenses incurred while earning revenue should be reported in the same year as the income is recognized is known as the "Matching Principle." This principle ensures that expenses are matched with the revenues they help to generate, providing a more accurate picture of a company's financial performance within a given accounting period. By adhering to this principle, financial statements reflect the true profitability of the business.
Revenue is recognized when it is earned?
Generally, yes according to the accounting principle.
What is the matching principle?
The Matching Principle is a rule that requres that expenses be recorded and reported in the same period as the revenue that those expenses help earn. It is a fundamental concept of accrual accounting as it is the association between the economic benefits (revenue) and economic cost (expenses) that is used to calculate profit (which is a measure of performance).
Expenses incurred while earning revenue should be reported in the same period that the income is reported?
matching principle
