In this chapter, the learning objectives are: Cash-basis versus accrual income measurement, revenue recognition under accrual accounting, the matching principle and recognizing expenses under accrual accounting, the difference between product and period costs, income statement format and classification, distinctions of special items on the income statement,. | Accrual Accounting and Income Determination Revsine/Collins/Johnson/Mittelstaedt/Soffer: Chapter 2 Learning objectives Cash-basis versus accrual income measurement. Revenue recognition under accrual accounting. The matching principle and recognizing expenses under accrual accounting. The difference between product and period costs. Income statement format and classification. Distinctions of special items on the income statement. How to report a change in accounting principle, estimate and entity. The distinction between basic and diluted earnings per share (EPS). What comprises comprehensive income and how it is displayed in financial statements. Other comprehensive income differences between IFRS and GAAP. Review basic accounting procedures and T-account analysis. Accrual accounting: The cornerstone of income measurement Under accrual accounting: Revenues are “recognized” (recorded) as soon as they are both: Earned, meaning the seller has performed a service or conveyed an asset to the buyer; Measurable, meaning the value to be received for that service or asset is reasonably assured and can be measured with a high degree of reliability. Expenses are expired costs—the assets used up to produce revenues—and are recorded in the same accounting period in which the revenues are recognized. Expenses are “matched” to revenues! Net income = Revenues - Expenses Understanding accrual accounting Accrual accounting decouples measured earnings (., revenues minus expenses) from the amount of cash generated from operations. Accrual accounting revenues generally do not correspond to cash receipts for the period, nor do accrual expenses always correspond to cash outlays for the period. Accrual accounting can produce large discrepancies between measured earnings and the amount of cash generated from operations. Accrual earnings is a more accurate measure of the economic value added during the period than is operating cash flow. Because of differences in the . | Accrual Accounting and Income Determination Revsine/Collins/Johnson/Mittelstaedt/Soffer: Chapter 2 Learning objectives Cash-basis versus accrual income measurement. Revenue recognition under accrual accounting. The matching principle and recognizing expenses under accrual accounting. The difference between product and period costs. Income statement format and classification. Distinctions of special items on the income statement. How to report a change in accounting principle, estimate and entity. The distinction between basic and diluted earnings per share (EPS). What comprises comprehensive income and how it is displayed in financial statements. Other comprehensive income differences between IFRS and GAAP. Review basic accounting procedures and T-account analysis. Accrual accounting: The cornerstone of income measurement Under accrual accounting: Revenues are “recognized” (recorded) as soon as they are both: Earned, meaning the seller has performed a service or conveyed an .
