Revenue Recognition Concept: It states that revenue is considered realized when cash is received or the right to receive cash is generated from the sale of goods or services. This principle underscores that revenue should only be recorded in the accounting records when it is actually realized. The term 'realization' pertains to the establishment of a legal right to receive funds. It's important to note that receiving orders does not equate to selling items.
Matching Concept: According to the matching idea, income and expenses incurred to earn revenue must be recorded in the same accounting period. Following the realization of revenue, the next step is to allocate it to the appropriate accounting period. The accrual idea can be used to do this.
Accrual Concept: The accrual principle is an accounting theory that states that transactions must be documented in the period in which they occur, regardless of when the transaction's actual cash flows are received. The accrual principle states that financial events are appropriately recognized when revenues and expenses are matched when transactions – such as a sale – occur, rather than when the transaction's actual payment is received.
Stable Monetary Unit Concept: The concept of a stable monetary unit posits that the value of the dollar remains constant over time. This notion simply allows accountants to ignore the impact of inflation, which is defined as a reduction in the number of real goods that a dollar can buy.