Chapter 6 & 7 (Income And Expenses)

Question 1

Define Revenue recognition theory
Or
How is revenue recognised / recorded

Answer 1

Revenue is recorded / earned when goods have been delivered or services have been provided

Question 2

Define matching theory
Or
How is expenses recognised / recorded

Answer 2

Expenses incurred must be matched against income earned in the same period to determine the profit for that period

Question 3

Define accrual basis of accounting

(Applies to both Income and Expenses:
Why is expenses/income adjusted? OR what is the theory behind Prepaid Exp/Exp Payable/Income Receivables/Income Received in advance)

Answer 3

Business activities that have occurred, regardless of whether cash is paid or received, should be recorded in the relevant accounting period

Question 4

Service fee revenue received in advance

Answer 4

Money received for service fee revenue in this financial year but services will only provided in the next financial year

Question 5

Income received in advance

Answer 5

Money received for other income in this financial year but services will only be provided in the next financial year

Question 6

Prepaid expenses

Answer 6

Money paid in this financial year but goods and services will only be used / incurred in the next financial year

Question 7

Income receivables

Answer 7

Services provided in this financial year but money has not been received

Question 8

Expenses payable

Answer 8

Goods / services used / incurred in this financial year but money has not been paid