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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following expenditures should be recorded as an expense under the expense recognition principle?

Purchase of equipment expected to last five years

Prepayment of rent for the next six months

Payment of monthly utility bills for the current period

Acquisition of inventory not yet sold

Previous problemNext problem

Verified step by step guidance

Understand the expense recognition principle: This principle states that expenses should be recognized in the same period as the revenues they help generate. If an expenditure does not directly contribute to current period revenue, it is typically recorded as an asset rather than an expense.

Analyze the purchase of equipment expected to last five years: Equipment is a long-term asset and its cost is allocated over its useful life through depreciation. Therefore, it is not recorded as an expense immediately but as an asset.

Evaluate the prepayment of rent for the next six months: Prepaid rent is considered an asset because it provides future economic benefits. It is expensed gradually as the rent period progresses.

Consider the payment of monthly utility bills for the current period: Utility bills for the current period directly contribute to the operations of the business during this period. Hence, they are recorded as an expense under the expense recognition principle.

Review the acquisition of inventory not yet sold: Inventory is recorded as an asset because it has not yet been sold to generate revenue. It is expensed as 'Cost of Goods Sold' only when the inventory is sold.