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Revenue Recognition Principles

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Introduction There are different aspects when working with financial statements. There are different financial statements within accounting. The balance sheet provides the overall picture for an organization; the income statement provides a list of revenue and expenses. You can locate the retained earnings statement within the balance sheet or you can look at the income statement that will provide the same information. The cash flow provides an indication on how much cash enters and leaves an organization. The following paper will go further into the depths of accounting to explore the revenue and expense recognition principle Revenue Recognition Principle Accountants know that including information provided by the Financial Accounting …show more content…

Allocate the transaction price to the separate performance obligations. 4. Recognize revenue when the entity satisfies each performance obligation Expense Recognition Principle This principle has a requirement that equals expenses matching with revenue. The major issue is having a conclusive reasoning that expenses make its donation in regards to revenue. There are expectations that the matching of expenses and revenue is required in order for organizations to spawn revenue. Quintessential expense recognition should appear simultaneously as revenue recognition with which a disbursement is correlated with the matching principles. Prepaid Expenses One area that may require adjusted entries is prepaid expenses. Sometimes companies have expenses that are paid in advance, or they have payments that are made before services are rendered. These are called prepaid expenses or prepayments. An asset account increases when expenses are paid ahead of time (the asset account is debited). This will then reflect the service, or benefit to the company when they are received in the …show more content…

The supplies are used throughout the month, and then an inventory of what was actually used during that accounting period is recorded, as the supply expense for that specific accounting period. The reminder of the cost of the supplies, which were prepaid for, stays in the asset account. The next accounting period once again the adjusted entry will only show the amount for the specific supplies needed at that time. This would continue until all the supplies are accounted for, in adjusted entries throughout the year. (Kimmel

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