Statement of Earnings

Revenue - Expenses + Gains - Losses = Net Income

Cash Basis vs Accrual Basis

Cash Basis

• Recorded when cash is received
• ex

Cash (+A) - $100

Revenue (+SE) - $100

• GAAP does not allow

Accrual Basis

• Revenue and expenses recognized when transactions that caused them occurred
• Required by GAAP and IFRS

Revenue Recognition Principle

• Realized and earned transactions
• Unearned Revenue | Accounts Receivable

Expense Matching Principle

• Resource consumed in a period should be recorded in that period (regardless of when cash paid)