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, what must a municipality do with its revenue to comply with proper revenue recognition principles?

Recognize revenue when expenses are paid.

Recognize revenue when it is earned, regardless of when cash is received.

Recognize revenue at the end of the fiscal year, regardless of earning or receipt.

Recognize revenue only when cash is received.

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Verified step by step guidance

Understand the accrual basis of accounting: Under this method, revenues are recognized when they are earned, not necessarily when cash is received. This principle ensures that financial statements reflect the true economic activity of the entity during a specific period.

Review the concept of revenue recognition: Revenue is considered earned when the municipality has provided goods or services or fulfilled its obligations under a contract, regardless of whether payment has been received.

Compare the options provided in the problem: Analyze each option to determine which aligns with the accrual basis of accounting. For example, recognizing revenue only when cash is received aligns with the cash basis of accounting, not the accrual basis.

Focus on the correct principle: The correct approach under the accrual basis is to recognize revenue when it is earned, as this reflects the municipality's performance and obligations during the fiscal period.

Apply this principle to the municipality's financial reporting: Ensure that all revenue transactions are recorded in the period in which they are earned, regardless of the timing of cash receipts, to comply with proper revenue recognition principles.