GAAP tells us when to record revenue and expenses.

Concept #1: Revenue Recognition Principle

Concept #2: Expense Recognition - The Matching Principle

Practice: From an accrual accounting perspective, label the following events as an expense or not an expense:

• An employee works all week for the company:

•The company pays the employee for the past two weeks of work:

•The company occupies a space for a month

•The company pays for a year’s worth of rent

Practice: A company has provided you with the following information about January’s income.  If the company uses a cash basis of accounting, what is their net income for the month of January?

Practice: If the company uses an accrual basis of accounting, what is their net income for the month of January?