Question

A list of concepts are provided below. Select the appropriate description for the concept.

Answer 1

Answer:

1. Cash-basis accounting - Companies record revenues when they receive cash and record expenses when they pay out cash.

Unlike in Accrual basis accounting, here revenue is recognized when the money is paid regardless of if the payment for services comes after a year. The same goes for expenses. Tax authorities use the Cash basis.

2. Fiscal year - An Accounting time period that is one year in length.

This is the Accounting period for a firm. It runs for 12 months and depends on when they started business or when they want to report financials.

3. Revenue recognition principle - Recognize revenue in the accounting period in which a performance obligation is satisfied

This falls under the Accrual basis of accounting. It is recommended by GAAP. Revenue should be recognized only when the service has been accomplished regardless of when actual payment is made.

4. Expense recognition principle - Efforts (expenses) should be matched with accomplishments (revenues).

Follows the same premise as the Revenue recognition principle. Recognize expenses when incurred and should be matched to revenues.