Revenue Recognition Principle
- Value of revenue can be measured
- Probable economic benefits will be received
- Ownership of goods or services passed to the customer.
Matching principal
- A key principle when preparing a P&L :
- All costs and expenses incurred must be matched to the revenue they helped generate in the same accounting period.
- Costs of goods sold and not cost of goods purchased or manufactured
- Prepaid expenses (customer): current assets = Deferred revenue (supplier): other liabilities
- Accrued expenses (customer): other liabilities =Invoice to be issued (supplier): current asset
Tangibility vs Intangibility :
- Tangible :
- Things that we can touch like car
- Intangible :
- Somethings that we can’t touch like software
Accounting equation
