cash basis accounting
cash basis accounting records revenues when cash is received and expenses when cash is paid
accrual basis accounting
accrual basis of accounting records revenues when they are earned and expenses when they are incurred regardless of whether paid or received payments
revenue recognition principle
revenue are recognized in the period when they are earned
matching principle
records expenses in the same period as the revenue earned
depreciation
assets lose value over time as they are used in business to generate revenue
straight line method
cost of asset/estimated useful life (months)
business entity concept
owner and business are considered as seperate entities
only biz transactions are recorded
monetary concept
records transactions in monetary terms
non financial transactions not recorded eg. loyalty
going concern theory
assume business will continue operating instead of being closed or sold
historical cost concept
record transactions based on actual cost
accounting period concept
life of a company can be divided into time periods
accounting statement
assets = liabilities + shareholders equity
accrued expense
cash is paid after expense is incurred
