Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

Financial Accounting

3. Accrual Accounting Concepts

Revenue Recognition and Expense Recognition

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Multiple Choice

Under the accrual basis of accounting, when can a company recognize the repayment of outstanding principal and interest on a loan?

When the loan agreement is signed

When the company receives the loan proceeds

When the payment is actually made to the lender

When the interest expense is accrued but not yet paid

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Verified step by step guidance

Understand the accrual basis of accounting: Under this method, revenues and expenses are recognized when they are incurred, not necessarily when cash is exchanged.

Analyze the repayment of principal and interest: Repayment involves the actual transfer of cash to the lender, which is a cash transaction rather than an accrual-based recognition.

Distinguish between interest expense accrual and repayment: Interest expense is accrued when it is incurred, even if it has not been paid yet. However, repayment of principal and interest is recognized only when the payment is made.

Evaluate the timing of recognition: The repayment of principal and interest is recognized under the accrual basis of accounting at the point when the payment is actually made to the lender, as this represents the settlement of the liability.

Conclude that the correct timing for recognizing repayment is when the payment is made, aligning with the principle that cash transactions are recognized at the time of occurrence under accrual accounting.