Working with Financial Statements
Working with Financial Statements
Accounting is the heart and soul of executing a successful business. Accounting is used to provide record for all items that are paid and received for a business over any period of time. Within the purpose of accounting lies the need to provide continuity and sustainability within a business, without it a business will not thrive. The information obtained is kept on record, in order to give insight to upper management on data concerning the daily revenue and expenses of that business. This data is needed to not only inform the employees of the business, but also the investing parties of that business as well. Success in business is equated to being accountable of all aspects of revenue and expenses. To help aid in the understanding of the practice of accounting, Team A will discuss the subjects of revenue and expense recognition principles. We will also discuss the importance of journal adjustments that are prepaid, unearned, and accrued for both revenues and expenses over time. Each item discussed helps provided and maintains a balance for the completion of a financial statement. If entered correctly, the all entries used will provide a clear picture of the account efforts of any business.
The Revenue Recognition and Expense Recognition Principle
Being able to account for a business’s revenues and expenses in a certain accounting period is difficult to determine. To do it correctly, one would need to understand two principles that set the standard; the revenue recognition principle and the expense recognition principle. In chapter 4 of our textbook Financial Accounting Tools for Business Decision Making, it states “the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned. In a service company, revenue is considered to be earned at the time the service is performed.” Therefore, the definition is that it is only to be recorded when the items sold where the
Accounting is the heart and soul of executing a successful business. Accounting is used to provide record for all items that are paid and received for a business over any period of time. Within the purpose of accounting lies the need to provide continuity and sustainability within a business, without it a business will not thrive. The information obtained is kept on record, in order to give insight to upper management on data concerning the daily revenue and expenses of that business. This data is needed to not only inform the employees of the business, but also the investing parties of that business as well. Success in business is equated to being accountable of all aspects of revenue and expenses. To help aid in the understanding of the practice of accounting, Team A will discuss the subjects of revenue and expense recognition principles. We will also discuss the importance of journal adjustments that are prepaid, unearned, and accrued for both revenues and expenses over time. Each item discussed helps provided and maintains a balance for the completion of a financial statement. If entered correctly, the all entries used will provide a clear picture of the account efforts of any business.
The Revenue Recognition and Expense Recognition Principle
Being able to account for a business’s revenues and expenses in a certain accounting period is difficult to determine. To do it correctly, one would need to understand two principles that set the standard; the revenue recognition principle and the expense recognition principle. In chapter 4 of our textbook Financial Accounting Tools for Business Decision Making, it states “the revenue recognition principle requires that companies recognize revenue in the accounting period in which it is earned. In a service company, revenue is considered to be earned at the time the service is performed.” Therefore, the definition is that it is only to be recorded when the items sold where the
References: Kimmel, P. D., Weygandt, J. J., & Kieso, D. E. ( 2010). Financial accounting: Tools for business decision making (6th ed.). Hoboken, NJ: John Wiley & Sons. 2011 Financial Principles Explained. Retrieved from http://accountingexplained.com/financial/principles/revenue-recognition Walther, L. (2012) Financial Accounting 2012 Edition. Retrieved from http://www.principlesofaccounting.com/chapter3/chapter3.html sofaccounting.com/chapter3/chapter3.html