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

There is a cause-and-effect relationship between revenues and expenses that dictates:

Expenses should be recognized in the same period as the revenues they help to generate.

Revenues should be recognized only when cash is received.

Revenues and expenses should always be recognized in different accounting periods.

Expenses should be recognized only when cash is paid.

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Verified step by step guidance

Understand the concept of the matching principle in Financial Accounting, which states that expenses should be recognized in the same period as the revenues they help to generate. This ensures accurate representation of financial performance.

Analyze the options provided in the problem. The matching principle directly supports the idea that expenses are tied to the revenues they contribute to, making the first option correct.

Review why the other options are incorrect: (a) Revenues should be recognized only when cash is received contradicts the accrual basis of accounting, which recognizes revenues when earned, not necessarily when cash is received. (b) Revenues and expenses should always be recognized in different accounting periods violates the matching principle. (c) Expenses should be recognized only when cash is paid contradicts the accrual basis of accounting, which recognizes expenses when incurred, not necessarily when cash is paid.

Relate this concept to real-world examples, such as recognizing the cost of goods sold in the same period as the revenue from selling those goods.

Conclude that the correct answer aligns with the matching principle, emphasizing the importance of accurately matching revenues and expenses within the same accounting period.