Which of the following is the principle that a company must...

Name: Problem 9, Chapter 3: Principles of Accounting Volume 1: Financial Accounting
Uploaded: 2020-04-15T08:41:49-08:00
Duration: 11 min 24 s
Channel: Puneet Prajapati
Description: Which of the following is the principle that a company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided? A. revenue recognition principle B. expense recognition (matching) principle C. cost principle D. full disclosure principle

Which of the following is the principle that a company must recognize revenue in the period in which it is earned; it is not considered earned until a product or service has been provided? A. revenue recognition principle B. expense recognition (matching) principle C. cost principle D. full disclosure principle

Which of the following is the principle that a company must recognize revenue in the period in which
it is earned; it is not considered earned until a product or service has been provided?
A. revenue recognition principle
B. expense recognition (matching) principle
C. cost principle
D. full disclosure principle

Key Concepts

Revenue Recognition Principle

This principle requires that a company recognizes revenue in the accounting period when it is earned, which means that revenue is recorded only after the delivery of goods or services has occurred. This ensures that financial statements accurately reflect the company's performance and aligns the revenue with the period in which the associated risks and rewards are transferred.

Transcript

00:01 Now look at the solution through an example.

00:05 Let's suppose we have a company which is named as excombe.

00:29 Now what happens when it prepares the financial statements, it goes through various types of transactions.

00:40 First of all ledger ledgers through that it comes to travel and come to statement of profit and loss and lastly balance sheet it provides the accurate view of the entity's financial position in terms of cash flow accruals and much more the overall financial position is given by a balance sheet.

02:09 So at the leisure level, what happens? let's understand this.

02:15 At the leisure level, entity only records revenue related to which entity has received amount or entity has supplied goods or services.

03:28 So mainly there are two clauses.

03:35 Two clauses and either of each, either of is required to be met to record the revenue in the financial statements of the entity.

03:46 Now first look at this one.

03:52 Let's suppose x company receives amount from mr.

04:01 B.

04:05 $1 .50 for service.

04:19 For service of laptop creditors.

04:36 Now what will happen? laptop maintenance for one year.

04:45 Now what will happen? x company will record this revenue in the financial statements irrespective of providing the maintenance services throughout the year.

05:02 Like let's understand this in other words.

05:05 The x -y the x company will record dollar 50 even if these services have not been provided so such amount will be reflected in the financial statements as an advance for providing the laptop self -maintenance services to mr...

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