ACC 925 Chapter Notes - Chapter 3: Deferral, Accrual, Accounts Receivable

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rubyleopard335

10 Oct 2016

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Chapter 3: accrual accounting and the financial statements. The difference between cash-basis accounting and accrual accounting: Cash-basis accounting: we using the cash basis accounting, we only record and journalize the transaction when a receipt to payment is given. For example: if a customer pays on account, we do not record the transaction until there is a receipt. Similarly, if we pay purchase inventory on account for. 2000, we do not record it until the company actually pays cash for the goods at a future date. Accrual accounting: when using the accrual accounting method, the receipt or payment of cash is irrelevant. Instead, the truly matters is when a business acquires an asset, earned revenue, taken on a liability or incurred an expense. For example, a business records a transaction after is gained as asset or earned revenue. Companies are not allowed to use the cash basis of accounting because it gives inaccurate information in the financial statements.

Related Questions

1. Undercash-basis accounting, when is revenue recorded? When is itrecorded under accrual-basis accounting?

2. Under accrualaccounting, when is revenue considered earned?

3. If amembership represents an advance payment for services provided,when is it recognized as revenue under the accrual basis, and whatis it called?

4. Why isinsurance expense spread over multiple periods even though thepolicy coverage is paid in advance?

5. At the end ofthe month for Silverâs Gym, what entries need to be made under thecash basis of accounting for wages that have not yet been paid?What entries need to be made under the accrual method?

6. Why is itimportant to match expenses and revenues to reflect the performanceof a business over a particular time period?

7. When mightthe use of cash basis accounting overstate the actual profitsearned by Silverâs gym? When might it understate the actual profitsearned?

8. Which basisof accounting is in accordance with GAAP for large companies?

puceeagle823

(Learning Objective 1: Explain how accrual accounting differs from cash-basis accounting)âHough Consulting had the following selected transactions in July:

July 1 Prepaid insurance for July through September, $4,200.

2 Purchased office furniture for cash, $5,000.

3 Performed consulting services for a client on account, $3,500.

5 Paid advertising expense, $500.

10 Performed consulting services and received cash, $1,500.

20 Purchased a computer on account, $2,500.

25 Collected for July 3 service.

26 Paid account payable from July 20.

29 Paid salary expense, $1,800.

31 Adjusted for July insurance expense (see July 1).

31 Earned revenue of $1,000 that was collected in advance back in June.

31 Recorded July depreciation on fixed assets, $125.

LO USING EXCEL:

1. Show how each transaction would be handled (in terms of recognizing revenues and expenses) using the cash basis and the accrual basis.

2. Compute July income (loss) before tax under each accounting method

3. Indicate which measure of net income or net loss is preferable. Use the transactions on July 3 and July 25 to explain.

Req. 1 & 2
Hough Consulting
Amount of Revenue (Expense) for July
Date		Cash Basis	Accrual Basis
July 1












	Income (loss) before tax	$ -	$ 0

Req. 3

greyplatypus825

Business owners are given a choice between using the cash basis of accounting and the accrual basis of accounting, which of the two methods do you believe they would choose? Based on your selected method, will the financial statements presented show a true representation of the company's performance? Why or why not?

A company fails to recognize revenue for services performed but not yet received. Which of the following types of accounts are involved: (a) asset, (b) liability, (c) revenue, or (d) expense? For the accounts selected, indicate whether it would be debited or credited in the entry.

In what order should the financial statements be prepared in? or does the order not matter?

The accountant for Newman Production services failed to record an adjusting entry of $5,000 for unpaid taxes. How will this impact the current year financial statements? Be sure to state the type of account (Asset, Liability, Owner's Equity, Revenue or Expense) and whether it will be understated or overstated.

burgundywallaby90

ACC 925 Chapter Notes - Chapter 3: Deferral, Accrual, Accounts Receivable

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