Under the accrual basis accounting, revenues and expenses are recognized by the following principles:
- Revenue recognition: Revenue is recognized when both of the following conditions are met: Revenue is earned and Revenue is realized or realizable.
- Expense recognition: Expense is recognized in the period in which related revenue is recognized (this is also known as the Matching Principle).
Respond to the following in a minimum of 175 words:
- Discuss when the requirements of the revenue recognition principle are usually met. Give an example.
- Discuss when the requirements of the expense recognition principle are usually met. Give an example.