Chapter 3

Question 1

Cash basis of accounting

Answer 1

Revenues and expenses are recorded when cash is received or expensed (NOT ALLOWED)

Question 2

Accrual basis of accounting

Answer 2

Assets, liabilities, revenues, and expenses should be recognized when the transaction that causes them occurs, not necessarily when cash is paid or received

Question 3

2 foundations that supports accrual basis

Answer 3

A) Matching principles
B) Revenue recognition

Question 4

Revenue principle, recognize revenues when…

Answer 4

R –> The entity has transferred to the buyer the significant risks and rewards of the ownership.

P –> Th entity retains neither continuing managerial involvement nor effective control over the goods sold

C –> Collection is reasonably assured

M –> The costs in respect of the transaction can be measured reliably

Question 5

Deferred revenue

Answer 5

Cash transactions happens first BEFORE providing the goods or service

Question 6

Accured revenue

Answer 6

Service and/or goods are provided FIRST BEFORE cash is exchanged

Question 7

Deferred expenses

Answer 7

Cash is paid before expenses is incurred

Question 8

Accrued expense

Answer 8

Cash is paid after expense is incurred