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

Which accounting principle is most directly challenged when a company's revenue is based on inconsistent commission payments?

Full Disclosure Principle

Matching Principle

Historical Cost Principle

Revenue Recognition Principle

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Verified step by step guidance

Understand the Revenue Recognition Principle: This principle states that revenue should be recognized when it is earned and realizable, not necessarily when cash is received. It ensures that revenue is recorded in the correct accounting period.

Analyze the scenario: The problem mentions inconsistent commission payments. This suggests that revenue recognition might be occurring at irregular intervals, which could challenge the proper application of the Revenue Recognition Principle.

Compare with other principles: The Full Disclosure Principle ensures all relevant financial information is disclosed, the Matching Principle aligns expenses with revenues, and the Historical Cost Principle records assets at their original purchase price. None of these directly address the timing of revenue recognition.

Identify the issue: Inconsistent commission payments can lead to revenue being recognized in the wrong accounting period, violating the Revenue Recognition Principle's requirement for timely and accurate revenue reporting.

Conclude: The principle most directly challenged in this scenario is the Revenue Recognition Principle, as it governs the timing and conditions under which revenue is recorded.