Chapter 4, Problem 4.6BYP

(a)

To determine

Income statement:

This is the financial statement of a company which shows all the revenues earned and expenses incurred by the company over a period of time.

Generally Accepted Accounting Principle (GAAP):

Two generally accepted accounting principles that relates to adjusting the accounts are as follows:

• The revenue recognition principle
• The expenses recognition principle

The revenue recognition principle:

The revenue recognition principle refers to the revenue that should be recognized in the time period, when the performance obligation (sales or services) of the company is completed.

The expense recognition principle:

The expense recognition principle refers to the expenses that should match with revenue (matching principle) in the period when the company incurred expenses in order to generate the revenue.

To prepare: The correct income statement of Company LP for the quarter ended March 31, 2014.

(b)

To determine

To explain: The effects of GAAP principle which was not recognized at the time of preparing the income statement.