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EXPENSES. and Expenses Cause A Decrease in

The document discusses key accounting concepts including revenues, expenses, the going concern assumption, accounting period concept, realization concept, and matching concept. It defines revenues as increases in assets or decreases in liabilities from sales, and expenses as decreases in assets or increases in liabilities required to generate revenues. The going concern assumption and accounting period concept state that a business's life is indefinitely long, so financial information is reported periodically rather than at the end of its life. The realization and matching concepts concern recognizing revenues and expenses in the same accounting period for transactions that affect both.

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Gizem Özçelik
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70 views14 pages

EXPENSES. and Expenses Cause A Decrease in

The document discusses key accounting concepts including revenues, expenses, the going concern assumption, accounting period concept, realization concept, and matching concept. It defines revenues as increases in assets or decreases in liabilities from sales, and expenses as decreases in assets or increases in liabilities required to generate revenues. The going concern assumption and accounting period concept state that a business's life is indefinitely long, so financial information is reported periodically rather than at the end of its life. The realization and matching concepts concern recognizing revenues and expenses in the same accounting period for transactions that affect both.

Uploaded by

Gizem Özçelik
Copyright
© Attribution Non-Commercial (BY-NC)
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PPT, PDF, TXT or read online on Scribd
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The increases of assets or decreases of liabilities that result from the sale of goods or services to customers are called

REVENUES. And revenues cause an increase in owners equity. The consumption of recourses (decreases of assets or increases of liabilities) that are required in order to generate these revenues are called EXPENSES. And expenses cause a decrease in owners equity.
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GOING CONCERN ASSUMPTION


According to going concern assumption, it is usually assumed that the life of a business is indefinetly long.
In other words, it states that company will continue to do business for an indefinitely long period in the future.
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Is it rational to wait the end of the business life for getting financial information about the entity?
Management and other interested parties are unwilling to wait until business has ended before obtaining information on how much income has been earned. They need to know how things are going at frequent intervals
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ACCOUNTING PERIOD CONCEPT


Accounting period concept states that the indefinite life of companies are divided into equal periods/intervals to see the performans of the company. Accounting measures activities for a specified period/interval of time which is called ACCOUNTING PERIOD.
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ACCOUNTING PERIOD CONCEPT


In the majority of business, ACCOUNTING YEAR = CALENDAR YEAR

Accounting year starts on 1st of January and ends on 31st of December. The accounting year is referred to FISCAL YEAR as well.
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ACCOUNTING PERIOD CONCEPT


To provide timely and meaningful information to the users of financial statements, life of the entity is divided into time periods, and it is called ACCOUNTING PERIOD CONCEPT

REALIZATION CONCEPT
This concept is about the recognition time of the revenues
Realization concept states that revenues should be recognized at the time goods are sold and services are rendered. Beside this the amount recognized as revenue is the amount that customers are reasonably certain to pay
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REALIZATION CONCEPT
In general, Revenue from the sale of goods is recognized in the period in which goods are delevered to customers, Revenue from the performance of services is recognized in the period in which services are rendered.
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MATCHING CONCEPT

In general expenses should be recognized in the period in which thay are consumed.

MATCHING CONCEPT
In order to measure correctly this sales net effect on the Net Income of the period, and also on the Retained Earnings, both of revenue and expense aspects of sale transaction must be recognized in the same accounting period.

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MATCHING CONCEPT

MATCHING CONCEPT states that, When an event affects both revenue and expenses, the effect on each should be recognized in the same accounting period.

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LETS CLARIFY SOME TERMS


COST: is a monetary measurement of the amount of expenditure made for some purposes. EXPENDITURE (SPENDING): is a decrease in assets or increase in liabilities or both associated with the incurrence of a cost.
EXPENSE: is a monetary measurement of the resources consumed by the entitys business activities during the accounting period. DISBURSEMENT: is a cash payment.

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CRITERIAS FOR EXPENSE RECOGNATION


There are basically three criteria for expense recognation; 1. Direct Matching 2. Period Expenses 3. Cost not Associate with Future Benefits
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In general when the cost is incurred,

If you expect benefit from the cost in the future, recognize it as an ASSET If you do not expect benefit from it in the future or there is no reasonable basis for classifying the cost as an asset, report it as an EXPENSE in the related period.

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