1)Palm Beach Hotel recognizes room rental revenue on the date that a reservation

Question

1)Palm Beach Hotel recognizes room rental revenue on the date that a reservation is received. For the winter season, many guests make reservations as much as a year in advance.

For each of the situations described below, indicate the underlying accounting principle that is being violated. Choose from the following principles:



Realization
Matching
None
Cost
Materiality
Objectivity


2) A small commuter airline recognizes no depreciation expense on its aircraft because the planes are maintained in "as good as new" condition.

Objectivity
Realization
Cost
None
Matching
Materiality

Explanation / Answer

1. Matching principle - According to the principle, expenses are recognized when obligations are (1) incurred (usually when goods are transferred or services rendered, e.g. sold), and (2) offset against recognized revenues, which were generated from those expenses (related on the cause-and-effect basis), no matter when cash is paid out. 2. Objectivity principle - The objectivity principle states that accounting measurements and accounting reports should use objective, factual, and verifiable data. In other words, accountants, accounting systems, and accounting reports should rely on subjectivity as little as possible. An accountant always wants to use objective data (even if it's bad) rather than subjective data (even if the subjective data is arguably better).

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