The statement is not entirely accurate. The objective of matching revenues and expenses to specific fiscal periods is best achieved not necessarily when cash related to the transactions is received or paid, but when the revenues are earned and the expenses are incurred. This is known as the accrual basis of accounting.

Here are the steps to understand this:

1. Revenue Recognition Principle: This accounting principle states that companies should record revenue when it is earned, not necessarily when the cash is received. For example, if a company sells a product on credit, it would recognize the revenue at the time of the sale, even though it hasn't received the cash yet.

2. Expense Recognition Principle (or Matching Principle): This principle states that expenses should be matched with revenues. This means that expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue. For example, the cost of goods sold is recognized as an expense when the goods are sold, not when they are produced or paid for.

3. Cash Basis vs Accrual Basis: The statement you provided refers to the cash basis of accounting, which recognizes revenues and expenses only when cash is received or paid. However, this method does not accurately reflect the company's financial performance and position, because it ignores the current obligations and future cash receipts and payments. The accrual basis of accounting, on the other hand, recognizes revenues when they are earned and matches expenses to those revenues, which provides a more accurate picture of a company's financial situation.

So, the objective of matching revenues and expenses to specific fiscal periods is most nearly attained when revenues are recognized when they are earned and expenses are recognized when they are incurred, not necessarily when cash is received or paid.

Question

The statement is not entirely accurate. The objective of matching revenues and expenses to specific fiscal periods is best achieved not necessarily when cash related to the transactions is received or paid, but when the revenues are earned and the expenses are incurred. This is known as the accrual basis of accounting.

Here are the steps to understand this:

1. Revenue Recognition Principle: This accounting principle states that companies should record revenue when it is earned, not necessarily when the cash is received. For example, if a company sells a product on credit, it would recognize the revenue at the time of the sale, even though it hasn't received the cash yet.

2. Expense Recognition Principle (or Matching Principle): This principle states that expenses should be matched with revenues. This means that expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue. For example, the cost of goods sold is recognized as an expense when the goods are sold, not when they are produced or paid for.

3. Cash Basis vs Accrual Basis: The statement you provided refers to the cash basis of accounting, which recognizes revenues and expenses only when cash is received or paid. However, this method does not accurately reflect the company's financial performance and position, because it ignores the current obligations and future cash receipts and payments. The accrual basis of accounting, on the other hand, recognizes revenues when they are earned and matches expenses to those revenues, which provides a more accurate picture of a company's financial situation.

So, the objective of matching revenues and expenses to specific fiscal periods is most nearly attained when revenues are recognized when they are earned and expenses are recognized when they are incurred, not necessarily when cash is received or paid.

Knowee AI · Accepted Answer

The statement is not entirely accurate. The objective of matching revenues and expenses to specific fiscal periods is best achieved not necessarily when cash related to the transactions is received or paid, but when the revenues are earned and the expenses are incurred. This is known as the accrual basis of accounting.

Here are the steps to understand this:

1. Revenue Recognition Principle: This accounting principle states that companies should record revenue when it is earned, not necessarily when the cash is received. For example, if a company sells a product on credit, it would recognize the revenue at the time of the sale, even though it hasn't received the cash yet.

2. Expense Recognition Principle (or Matching Principle): This principle states that expenses should be matched with revenues. This means that expenses are recognized not when the work is performed, or when a product is produced, but when the work or the product actually makes its contribution to revenue. For example, the cost of goods sold is recognized as an expense when the goods are sold, not when they are produced or paid for.

3. Cash Basis vs Accrual Basis: The statement you provided refers to the cash basis of accounting, which recognizes revenues and expenses only when cash is received or paid. However, this method does not accurately reflect the company's financial performance and position, because it ignores the current obligations and future cash receipts and payments. The accrual basis of accounting, on the other hand, recognizes revenues when they are earned and matches expenses to those revenues, which provides a more accurate picture of a company's financial situation.

So, the objective of matching revenues and expenses to specific fiscal periods is most nearly attained when revenues are recognized when they are earned and expenses are recognized when they are incurred, not necessarily when cash is received or paid.

The objective of matching revenues and expenses to specific fiscal periods is most nearly attained when revenues and expenses are recognized in the period during which cash related to the transactions is received or paid

Question

Solution

Similar Questions

Upgrade your grade with Knowee