Accrual basis accounting

Revenue Recognition Principle

Revenues are recognized when are EARNED (service/goods) NOT PAID

What is the normal balance side of revenue on in the T-Chart

The credit side, increases

What is revenue?

Revenues are earned by selling goods and services to customers

If revenue is to be recognize in July or not. If yes put the amount

• Bills collected $12,000 from customers for services related to games played in July

$12,000 is recorded because the service was on July

If revenue is to be recognize in February or not. If yes put the amount

• Swing Hard collected $2250 in advance payments for services to start in June

No amount is received because service starts is June not February

Expense recognition principle

Recognized in the same period as the revenues to which they related

• When the service was EARNED not paid

What is the normal side of Expenses in the T-chart?

The Debit side, increases

What is expense?

Money spent of doing businesses that are necessary to earn revenue.

Ex: wages, advertising, rent

If expense is to be recognize in July or not. If yes put the amount

Question: Bills paid $5475 to employees will work in July

$5475, It was earned on July so it's recognize

If expense is to be recognize in February or not. If yes put the amount

Question: Swing Hard paid $1750 for electricity used in the month of January

No it is not recognized because the service was on January not February

Deferred revenue

• Reported as a liability

• Cash before sale/services; meaning that I paid for a service that hasn't been done yet

Revenue is recognized when

Cash with sales/service, meaning that the service is done within the month

Account Receivable

Sale/service before and cash after, meaning

the company provided service/sales but have not collected the money from the purchaser/customer

account receivable

an unwritten promise by a customer to pay, at a later date, for goods sold or services rendered.

Example of Account Receivable

A manufacturer will have an ___________ ___________ when it delivers a truckload of goods to a customer on June 1 and the customer is about to pay in 30 days

prepaid expenses

• An asset

• Cash before expense, meaning cash is paid before the benefit is received

• future expenses that have been paid in advance

Expense is recorded when . . .

Cash with expense, meaning cash is paid same time the benefit is received

account payable

• a liability

• expense before and cash is after, meaning cash is paid after the benefit is received

What is account payable?

Money owed by a company to its creditors

What is account receivable?

• Money owed by a customer to a company

•Amounts owed to a facility by customers who received services but whose payments WILL BE made at a later date by the patients