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.

Revenue Recognition

Revenue recognition is generally acknowledged accounting standard that evaluates the precise condition in which revenue is accounted or recognized for; typically, income is accepted only when a significant event has happened, and the amount of tax is measurable. Revenue recognition principles are only accomplished when risks and rewards have been taken from the seller to the buyer. It is also regarded to be complete when the seller fails to have control over the items sold and when the amount of revenue can be effectively measured (Srivastava, 2014). Still, as part of the discussion, other requirements include when the cost of income can be reasonably estimated. Conditions one and two above are called performance that only occurs when the seller has accomplished what is expected to be entitled to payment. Conditions four and five are called measurability and due to accounting principles, the seller ought to be able to level up all the revenues to the expenses.

Expense Recognition

According to Srivastava, A. (2014), expense recognition standard outlines that expenses ought to be approved in the same period as the revenues to which they relate. If this were not the requirements, payments would likely be acknowledged as incurred that might follow the duration in which the associated amount of revenues is conceded. For instance, a business compensates $50,000 for products; that it sells in the next month for $100,000. Under the expense recognition policy, the $50,000 cost must not be acknowledged as an expense until the next month, when the associated revenue is also approved. Or else, payments will be overstated by $50,000 in the present month and understated by $50,000 in the coming month. Therefore, these are the requirements that ought to be accomplished to meet the two principles.

Reference

Srivastava, A. (2014). Selling-price estimates in revenue recognition and the usefulness of financial statements. Review of Accounting Studies, 19(2), 661-697.