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In accounting, the revenue recognition principle states that revenues are earned and recognized when they are realized or realizable, no matter when cash is received. It is a cornerstone of accrual accounting together with the matching principle. Together, they determine the accounting period in which revenues and expenses are recognized. [1]
The installment sales method, is used to recognize revenue after the sale has occurred and when sales are stipulated under very extended cash collection terms. [3] In general, when the risk of not being able to collect is reasonably high and when there is no reasonable basis for estimating the proportion of installment accounts, revenue recognition is deferred, and the installment sales method ...
In accrual basis accounting, the matching principle (or expense recognition principle) [1] dictates that an expense should be reported in the same period as the corresponding revenue is earned. The revenue recognition principle states that revenues should be recorded in the period in which they are earned, regardless of when the cash is ...
Forecasting returns accurately isn’t easy, but being wrong can have heavy implications.
Under the U.S. Internal Revenue Code, "Except as otherwise provided" by law, gross income means "all income from whatever source derived," and is not limited to cash received. [3] Federal tax regulations interpret this general rule. The amount of income recognized is generally the value received or the value which the taxpayer has a right to ...
Simple example If an investor owns 10 shares of a stock purchased for $4 per share, and that stock now trades at $6, the "mark-to-market" value of the shares is equal to (10 shares * $6), or $60, whereas the book value might (depending on the accounting principles used) equal only $40.
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Given any ratio, one can take its reciprocal; if the ratio was above 1, the reciprocal will be below 1, and conversely. The reciprocal expresses the same information, but may be more understandable: for instance, the earnings yield can be compared with bond yields, while the P/E ratio cannot be: for example, a P/E ratio of 20 corresponds to an ...