15. Why is revenue recognition principle needed? What does it demand?
It provides guidance on when a company must recognize (record) revenue. It is needed to show how the business is profiting in a certain amount of time. It demands each and every transaction that is made to determine profit.
a.) assets: Resources that a company owns or controls. b.) liabilities: Creditors’ claims on assets. c.) equity: Owner’s claim on assets, and is equal to assets minus liabilities. (Net Assets/ Residual Assets)
d.) net assets: The value of an entity's assets less the value of its liabilities, often in relation to open-end or mutual funds.
20. What do accountants mean by the term revenue?
The increase of retained earnings or net income and are resources generated from a company’s earnings activities.
21. Define net income and explain its computation. The excess of revenues over outlays in a given period of time (including depreciation and other non-cash expenses). Net income is calculated by the collected total amount revenue that is gained.
Quick Study Questions
GAAP: General Accepted Accounting Principles Rules/ Principles that allow info to be relevant, reliable, and comparable
SEC: Securities and Exchange Commission Government agency that has legal authority to set the GAAP
FASB: Financial Accounting Standards Board Private sector group that sets both broad and specific principles
IASB: International Accounting Standards Board: Set