February 19, 2017

Homework Help: financing

Posted by Jess on Wednesday, December 12, 2007 at 12:32pm.

The revenue recognition principle simply dictates that revenue is recognized in the accounting period that it is earned. For human service organizations, revenue is considered to be earned at the time a service is delivered. For example, let's say a physician sees 25 people on June 30th, but does not receive payment for those services until the first week in July. Under the revenue recognition principle, the revenue is considered earned in June when the service was rendered, not in July when the revenue was received. Improper application of this principle can have some serious consequences.

What is the potential impact on a business when this rule is not followed? How does this relate to the accrual or cash-basis of accounting?

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