Chapter 3 Homework

1. | | Discuss the major principle that describes recording revenues.The revenue recognition principle states that we record revenue in the period in which we earn it. | | | 2. | | Discuss the major principle that describes recording expenses.The matching principle states that we recognize expenses in the same period as the revenues they help to generate. | | LO1 | 3. | | Samantha is a first-year accounting student. She doesn't think it matters that expenses are reported in the same period's income statement with the related revenues (matching principle). She feels that “as long as revenues and expenses are recorded in any period, that's good enough.” Help her understand why the matching principle is important.There is a cause-and-effect relationship between revenue and expense recognition. The result is a measure—net income—that matches current period accomplishments (revenues) and sacrifices (expenses). | | LO1 | 4. | | Describe when revenues and expenses are recognized using cash-basis accounting. How does this differ from accrual-basis accounting?Under cash-basis accounting, we record revenues at the time we receive cash and expenses at the time we pay cash.Accrual-basis accounting is where we record revenues when we earn them (the revenue recognition principle) and we record expenses with related revenues (the matching principle). | | LO2 | 5. | | Executive Lawn provides $100 of landscape maintenance to Peterson Law on April 10. Consider three scenarios: a. | | Peterson pays for the lawn service in advance on March 28. | b. | | Peterson pays for the lawn service on April 10, the day of service. | c. | | Peterson pays for the lawn service the following month on May 2. |
If Executive Lawn uses accrual-basis accounting, on which date would Executive Lawn record the $100 revenue for each scenario?April 10 | | LO2
Flip Side of Question 7

| 6. | | Consider the information in question 5. Using cash-basis