Timing issues

Accountants divide the economic life of a business into artificial time periods

(Time Period Assumption)

• Generally a month, a quarter, or a year.
  
• Fiscal year vs. calendar year
  
• Also known as the "Periodicity Assumption"
  

  
   

Accrual- vs. Cash-Basis Accounting

 

Accrual-Basis Accounting

• Transactions recorded in the periods in which the events occur
  
• Revenues are recognized when earned, rather than when cash is received.
  
• Expenses are recognized when incurred, rather than when paid.
  

 

Cash-Basis Accounting

• Revenues are recognized when cash is received.
  
• Expenses are recognized when cash is paid.
  
• Cash-basis accounting is not in accordance with generally accepted accounting principles (GAAP).