University:
Widener University
Course:
COMPSCI 345 | Practice and Applications of Data Management
Academic year:

2023
Views:

290

Pages:

6
Author:

Gunnar Gross

RECITATION AGENDA – SESSION 2 ¶ Office hours1: ¶ Principles of financial accounting measurement - Quick Review ¶ Problems ¶ Questions 1 Best method of reaching me QUICK REVIEW/MUST KNOW!! ¶ Principles of Financial Accounting Measurement Financial accounting information must be verifiable and neutral/unbiased. Are the following transactions recorded correctly?: − Record advertising expenses as an asset and depreciate it over 20 years. − Mark up the land value on the Balance Sheet at year-end to reflect an increased market value of the land. ¶ Matching principle: − Costs are matched against the benefits that result from them. − First step in applying the principle is deciding when to recognize the related benefit (i.e. revenue) − Revenues are booked when assets are created (or liabilities are discharged) and expenses are recorded when liabilities arise (or assets are reduced) Costs - Decision Tree Incur cost in current period Decide when benefit is received/recognized Current period Expense on income statement Future period Capitalize cost on balance sheet EXAMPLE – MATCHING PRINCIPLE 1) How should the following transactions be recorded in August? − In August Sloan receives your tuition for the whole fall semester. Cash = Deferred Revenue Retained Earnings − Sloan receives $ 50,000 of electricity from the local utility company in August, but only pays the bill in September. Cash = Accounts Payable Retained Earnings Principle of revenue recognition: Earned and Realizable − Company must have produced a significant portion of the sales effort. − The amount of revenue can be objectively measured. − The major portion of costs has been incurred and the remaining costs can be reasonably estimated. − The eventual collection of cash is reasonably assured. How should the following transactions be recorded? − An order by fax is received. − An order is shipped from England to a customer in Iraq which has very strict price controls (thereby making ultimate price uncertain). Accounts Receivable / Allowance for Doubtful Accounts - Accounts Receivable (AR) must be recorded at net realizable value o This requires an estimate of uncollectible accounts, which is represented by the Allowance for Doubtful Accounts (ADA) o Bad debts can be estimated in one of two ways: 1) %-of-Sales – estimate based on current period sales 2) Aging Schedule – estimate based analysis of period-end receivables - Gross AR – ADA = Net AR - Estimated bad debt expense increases ADA (reducing net AR) - Write-offs occur when the bad debt actually occurs, decreasing ADA and deceasing gross AR (no impact on net AR)