Please, write a discusion post about the below topic, please.
Revenue recognition and the matching principle are important concepts in the field of accounting. Discuss with appropriate examples.
Also, responseto the two classmates posts attached. Thank you
Instructions for main post (Around 200 words) Revenue recognition and the matching principle are important concepts in the field of accounting. Discuss with appropriate examples. In your response, provide at least one example. Include appropriate citations. (Citations only needed for main post) Instructions for the two classmate responses (around 150 words each) Please, respond to the below two classmate main posts. (Please, the responses need to be a discussion, not an evaluation. You can agree with them and add/comment about their response.) Classmate post #1: Dayana Alvarez Recognition is the “formal process of reporting a transaction or event in a company’s financial statements” (Schroeder, Myrtle, & Cathey, 2017). Revenue recognition is a generally accepted accounting principle that determines the specific conditions in which revenue is recognized or accounted for (Kenton, 2019). Normally, revenue is recorded when an event or transaction has occurred, and the amount of revenue is measurable. Companies recognize revenue when the revenue has been realized or realizable which means that a service is provided for a client or customer, or the sale or a product or good has been exchanged for cash or a promise to pay (Schroeder, Myrtle, & Cathey, 2017). Another condition for companies to recognize revenue is that revenue must be earned, and revenue is considered earned when a company has accomplished everything it must do to be entitled to the payment (Schroeder, Myrtle, & Cathey, 2017). For example, a person that provides massage therapy will only be able to recognize revenue when the service has been performed. In addition to revenue recognition, it is important to understand the concept of the matching principle. The matching principle is one of the basic underlying guidelines in accounting where it directs a company to report an expense on its income statement in the same period in which the related revenues are earned (Accounting Coach, 2019). For example, when a company such as a car dealership needs to pay commission to its sales representatives, the matching principle requires that the amount of commission expense for the month of June be reported on the June income statement along with June’s related revenues (Accounting Coach, 2019). References: Kenton, W. (2019). Revenue Recognition. Investopedia. Retrieved from https://www.investopedia.com/terms/r/revenuerecognition.asp Schroeder, R. G., Myrtle, W. C., & Cathey, J. M. (2017). Financial Accounting Theory and Analysis: Text and Cases (12th ed.). Hoboken, NJ: Wiley What is the Matching Principle? (2019). Accounting Coach. Retrieved from https://www.accountingcoach.com/blog/what-is-the-matching-principle Classmate post # 2: Maurice Naylon During informal discussions about both accounting and business performance, the terms recognize and realize are – mistakenly – often used interchangeably. “Recognition is the formal process of reporting a transaction or event in a company’s financial statements, whereas realization is the process of converting noncash assets to cash or claims to cash” (Schroeder et al, 2017, p. 132). Having outlined this difference, it’s important to understand when, specifically, a company recognizes revenue. Currently, companies recognize revenue when the following two conditions have been met: “[First,] the revenue has been ‘realized’ or is ‘realizable, [that is,] the products or services have been exchanged for cash or claims to cash [… Second,] the revenue has been earned” (Schroeder et al, 2017, p. 133). Following these criteria, if someone paid an auto mechanic for an oil change a week prior to the scheduled appointment, this revenue would not be recognized. While the revenue has been realized, it has not been earned, as the service has not yet been performed. Consequently, this example would entail deferred revenue, a liability on the mechanic’s books until the service has been performed, at which point in time the revenue would be recognized. In any discussion of revenue recognition, the matching principle must also be addressed. Specifically, once a company meets the above two criteria and recognizes revenue, “it must then identify all expenses associated with producing that revenue. This process of associating revenues with expenses is termed the matching concept,” which entails “matching revenues with the associated expenses [by relating] efforts to accomplishments” (Schroeder et al, 2017, pp. 149-50). Continuing the above example, the auto mechanic at some point in time prior to conducting an oil change must actually buy the oil. However, that initial purchase does not entail an expense, as no associated revenue has been produced. Rather, that oil becomes stockpiled as inventory – an asset. Once the oil change has been conducted and the deferred revenue finally recognized, part of that asset – the oil inventory – expires in the process, thus being matched as an expense to the associated revenue. References Schroeder, R. G., Clark, M. W., & Cathey, J. M. (2017). Financial accounting theory and analysis: Text and cases (12th ed.). Hoboken, NJ: Wiley