Unit 2 - 3 gaaps

Time Period Concept:

• Fiscal periods for a business’ income statements need to be of equal lengths of time

Revenue Recognition Principle

A GAAP principle stating that revenue is recognized when a transaction occurs, not necessarily when cash is received.

Matching Principle

A principle stating that expenses must be recorded in the same fiscal period as the revenues they helped to generate.

Example of Matching Principle

An advertisement costing $1,000 used for a sale on December 30th, 2017, illustrates the matching principle as the expense is recorded in 2017 even though paid in January 2018.

Service Provided

The point at which revenue is recognized under the Revenue Recognition Principle.