TOPIC 7. Accounting for Revenue and Expenses. What is “Reality” in Business?. A firm performs the following functions: .. it operates to generate revenues, .. it invests resources to enable operations, .. it finances its operations and investments with both internal and external sources, and
Accounting for Revenue and Expenses
Recognition criteria: Sale of goods
Revenue recognition:Rendering of services
Revenue recognition:Rendering of services (cont..)
Differences Using Both Methods:
Below is a Salma Enterprise for a month of June 2005.
Sales (70% on credit)60,000
Advertising expenses (cash)1,000
Rent expense (cash)1,500
Salary expense (unpaid)18,000
Collection from customer8,000
(from May credit sales)
Differentiate the profit by using both basis.
Net Profit 38,300
DepreciationISa procedure that allocates cost over more than one time period.
Definition of depreciation: a systematic and rational allocation of the cost of a long-lived item from asset to expense.
Depreciation IS NOT an attempt to measure the “fair market value” of an asset that is owned by a business.
It IS NOT necessarily a way of determining how much of an asset’s value has been “used up.”