Ch. 3

Question 1

Revenue

Answer 1

Gross inflows of assets or settlements of liabilities (i.e. increases in assets or decreases in liabilities) from delivering goods or services from ongoing central operations.

Question 2

Expense

Answer 2

Gross outflows of assets or incurrences of liabilities (i.e. decreases in assets or increases in liabilities) from delivering goods or services from ongoing central operations.

Question 3

Cash basis

Answer 3

Revenues are recognized when cash is received and expenses are recognized when cash is paid.

Question 4

Accrual accounting

Answer 4

Revenue is recognized when earned and expenses are recognized when incurred (i.e., when costs generate income).

Question 5

Cost principle

Answer 5

Requires that assets be recorded at the cash amount (or its equivalent) at the time that an asset is acquired.

Question 6

Revenue recognition

Answer 6

1. Delivery has occurred or services rendered
2. Price is fixed or determinable
3. Persuasive evidence of an arrangement for customer payment
4. Collection is probable (reasonably assured)