Explore BrainMass
Share

Explore BrainMass

    Is an accrual-basis or cash-basis recognition of revenue more relevant for evaluating the performance of a sales staff?

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Revenue on an accrual-accounting basis must be both earned and realized (or realizable) before accountants recognize it in the income statement. Companies recognize revenue in cash-basis accounting only when they have received the cash. Is an accrual-basis or cash-basis recognition of revenue more relevant for evaluating the performance of a sales staff? Why?

    © BrainMass Inc. brainmass.com October 10, 2019, 12:07 am ad1c9bdddf
    https://brainmass.com/business/revenue-recognition/accrual-basis-cash-basis-recognition-revenues-279808

    Solution Preview

    Dear student,
    Answer to your question is proved in a separate word document attached.It is produced herewith also.
    Question: Revenue on an accrual-accounting basis must be both earned and realized (or realizable) before accountants recognize it in the income statement. Companies recognize revenue in cash-basis accounting only when they have received the cash. Is an accrual-basis or cash-basis recognition of revenue more relevant for evaluating the performance of a sales staff? Why?

    Answer: There are some timing issues also in the preparation of financial statements. The economic life of the business is divided in to artificial periods in accordance with time period assumption.
    Many transitions affect more than one time period. For example revenue is received in one period while it is actually earned in next or future period.

    GAAP include two important principles of accounting. They are Revenue recognition and matching ...

    Solution Summary

    This solution discusses why accrual-based accounting is more appropriate with reference to GAAP in 582 words.

    $2.19