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Axiom 1: Revenues arise when work is done, independent of cash receipts. Axiom 2: Expenses arise as resources are used, independent of cash payouts. So
Axiom 1: Revenues arise when work is done, independent of cash receipts.
Axiom 2: Expenses arise as resources are used, independent of cash payouts.
So consider the following situations:
- 1)Our firm (our business, our company) is a repair firm. We go to a customers office and repair her air conditioner. We give her an invoice (a bill) for $200. Can we record revenue at this time? An accountant would say: Can we recognize revenue? Why or why not? Dont think too much! Just apply the appropriate axiom.
- 2)A customer pays us $3,000 cash right now to do repair work for them over the upcoming year. Can we record revenue at this time? Why or why not? Apply the appropriate axiom.
- 3)Our firm goes to a customers office and repairs a broken window. The customer pays us for the work right then and there, $180 cash. Can we record revenue at this time?
- 4)A software engineer comes to our office and fixes a software problem weve been having. She invoices us (bills us) $900. Should we record expense at this time? Apply the appropriate axiom.
- 5)We pay a tech-support company $6,000 right now to provide tech support to us over the upcoming year. Should we record expense at this time?
- 6)A cleaning firm comes to our offices and does janitorial work. We pay them $400 cash right then and there. Should we recognize expense at this time?
- 7)Our firm buys a delivery bike for $100 cash. Should we record expense at this time? Why or why not? As always, dont think too much! Just look at the axioms and see if they do or do not apply to this situation.
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