Revenue is recognized at the earliest point in the company’s operating cycle provided that both of the following conditions are met:

Revenue Had to be earned

Revenue is realizable

·         Current assets

·         Long-term investments

·         Property, plant and equipment

·         Intangible assets

·         Current liabilities

·         Long-term liabilities

Beginning Retained Earnings

+ Net Income (or – Net Loss)

_____- Dividends______

Operating Cash Flows

+/- Investing Cash Flows

+/- Financing Cash Flows

Financial statement that summarizes where (how) the company generated its cash and how it used (spent) cash during the period. 

Transactions involving long term liabilites & stockholders equity.

like borrowing and repaying long term debts

borrowiing and repaying Notes Payable( short and long term)

Cash transactions concerned with aquiring and disposing of Long term assets

the purchasing and selling of property, plant, equip

Purchase/sale of another company

capital expendentures

Accrual accounting better matches revenues with expenses, producing a more meaningful measure of operating performance and provides a better basis for predicting future performance of a business.

is to provide useful information, via

financial statements, to investors and lenders to assist them in making sound

investment and lending decisions.

No sale or purchase until inventory reaches destination

Seller responsible for inventory while in transit

an adjusting entry, originally recorded as an asset and its been used up, results in Assets overstated and expenses understated.......

an adjusting entry originally recorded as an liabilty but has been earned, results in Liabilities overstated revenues understated

Liabilities       xxx

o  Accounts that are closed to retained earnings (owners’ equity) at the end of the accounting period.  Balance in the temporary account (s) becomes zero. 

o  Temporary accounts start each period with a beginning balance of zero.

o  Temporary accounts include income statement accounts (revenues, expenses, gains and losses) and the dividends declared account.  All temporary accounts are equity accounts because they close to retained earnings. 

1. Sale is Complete and revenue has been earned

2.Amount of revenue can be measured

3.Cost of Generating revenue can be determined

4.Payment is reasonably assured

Accounts Recievable  10000

Sales Revenue                 10000

Bad Debt Expense       xxx

Allowance for doubtful accounts  xxx

allowance for doubtful accounts XXX

accounts recievable                       XXX

Beggining Inventory +

Cost of Goods Purchased=

Cost of Goods Available for Sale-

Ending Inventory

Higher COGS

Lower gross prfit

lower income before taxes

lower taxes