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Canada (158,052)
Commerce (1,633)
Chapter 3

Lecture Notes CH3.pdf

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McMaster University
Aadil Merali Juma

Instructors Resource Manual for Harrison et al Financial Accounting 5ce LEARNING OBJECTIVES After working with the material presented in Chapter 3 you should be able to1 Explain how accrual accounting differs from cashbasis accounting 2 Apply the revenue and expense recognition principles 3 Record adjusting journal entries 4 Prepare the financial statements 5 Record closing journal entries 6 Analyze and evaluate a companys debtpaying ability Copyright2015 Pearson Canada Inc 327 Instructors Resource Manual for Harrison et al Financial Accounting 5ce OBJECTIVE 1 Explain how accrual accounting differs from cashbasis accountingAIn accrualbasis accounting an accountant recognizes the impact of a business transaction as it occurs Both cash transactions collections from customers and paying salaries and noncash transactions purchase of supplies on account or providing a service on account are recorded under the accrual basisB In cashbasis accounting the accountant does not record a transaction until cash is received or paidC GAAP IFRS and ASPE require the use of accrual accounting As a result transactions are recorded as incurred not when cash is received or disbursedStone Company received 500000 from customers during 2012 Of that amount 40000 was for services rendered in 2011 but collected in 2012 Another 20000 was received from a customer for services to be provided early in 2013 Stone had provided 45000 of services in 2012 that had not yet been collected What amount would be reported on the 2012 income statement using the accrual and cash basis of accounting Cash basis 500000 Accrual basis 485000 500000400002000045000 Copyright2015 Pearson Canada Inc 328
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