- It is possible for the firm to delay or accelerate recognition of expenses
- Delay recognition: increase current net income → more aggressive
- Bad debt expense decrease → collection experience improved
- Lower warranty expense → higher quality product or expense recognition more aggressive
Note:
- Residual value: Estimated value of a fixed asset at the end of its lease
- Bad debt expense:
- Results when a company delivery goods or services on credit and customer did not pay the amount owed
- Accrual accounting
- Under accrual accounting, revenues are recognized when they are realized (payment collected) or realizable (the seller has reasonable assurance that payment on goods will be collected) and when they are earned (usually occurs when goods are transferred or services rendered).
- revenues are recognized if they are realized or realizable (the seller has collected payment or has reasonable assurance that payment on goods will be collected).
- Revenues must also be earned (usually occurs when goods are transferred or services rendered), regardless of when cash is received.