3. a) The major difference between the cash basis of accounting and accrual basis of accounting is recording or accounting for the non-cash liability and revenue of the business. It is evident from the first equation that the cash basis of accounting does not consider the upcoming liabilities of the business as against its resources. However, the accrual basis of accounting is done on the basis of the concept of going concern. Going concern clearly depicts that the business will continue its operations in the future and any expense and income attributed to an accounting year should be accounted in the same year. In the second equation also the cash profits earned in the business is only considered as the profits of the business, however, the concept of accrual accounting not just considers cash profits but also takes into account income receivable and expenses payable in the business. Accrual basis of accounting is based on the concept of going concept which clearly states that profit/ losses in the accounting year should be attributed in the same accounting period to depict a true and correct picture about the earned revenue in the business.
4. As a banker, the accrual basis report is more useful as it depicts the true picture of the financial health of the business. Apart, it also provides the correct picture of the cash inflows and outflows in the business which is of prior importance of the banker. Cash flows depict the liquidity of the business and therefore is of prime importance for the banker. Thereby, it is evident that as banker accrual basis of accounting will be considered as against cash basis report.
Goal: Ch 1, Cash-basis vs. accrual-basis accounting equation (pp. 14-15). 1. Consider the following two cash-basis...
Goal: Ch 1, Cash-basis vs. accrual-basis transaction analysis (pp. 15-19, 100-101). 1. Consider how shareholder contributions of $100,000 (to form the corporation) affect the following cash- and accrual-basis accounting equations, respectively: Cash-Basis Assets/Resources = Claims against Resources Cash = Contributed Capital + Earned Capital = Accrual-Basis Assets/Resources = Claims against Resources Cash Inventory = Liabilities + Shareholders’ Equity Cash Inventory = Liabilities + Contributed Capital + Earned Capital Cash Inventory = Accounts Payable + Contributed Capital + Revenues Expenses =...
Goal: Ch 1. Cash-basis vs. accrual basis financial statements, excluding cash flows (pp. 20-23) 1. Consider how shareholder contributions of $100,000 (to form the corporation) affect the following cash and accrual-basis accounting equations, respectively Assets/Resources Cash Cash-Basis Claims against Resources Contributed Capital + Assets/Resources Cash Inventory Cash Inventory Cash Inventory Accrual-Basis Claims against Resources Liabilities + Shareholders' Equity Liabilities + Contributed Capital Eamed Capital Accounts Payable + Contributed Capital + Revenues Expenses 2. In addition to the previous transaction, assume...
1. Consider how shareholder contributions of $100,000 (to form the corporation) affect the following cash- and accrual basis accounting equations, respectively Assets Resources Cash - Cash-Basis Claims against Resources Contributed Capital + Farned Capital 1 Assets Resources Cash Inventory Cash Inventory Cash Inventory Accrual-Basis Claims against Resources Liabilities + Shareholders' Equity Liabilities + Contributed Capital + Earned Capital Accounts Payable + Contributed Capital Revenues Expenses 2. In addition to the previous transaction, assume that the corporation purchases inventory for $10.000...
Goal: determine the effect of various transactions on the cash-basis accounting equation (pp. 55-59) 1. Use the template below to indicate how the following transactions affect the cash-basis accounting equation: a. Kissimmee, Inc. (a retail store) begins business on January 1, 2015 with a $100,000 cash contribution from the owners. b. On January 1, 2015, Kissimmee hires tive employees to manage and operate the business. c. On January 1, 2015, Kissimmee pays the monthly rent of $500 cash. d. On...
Q: Credit purchases of inventory decrease total liabilities using accrual-basis accounting. A: True or False? Goal: Transaction analysis using ACCRUAL-basis accounting. 1. Use the template below to indicate how the following transactions affect the accrual-basis accounting equation: a. Kissimmee, Inc. (a retail store) begins business on January 1, 2015 with a $100,000 cash contribution from the owners. b. On January 1, 2015, Kissimmee hires five employees to manage and operate the business. c. On January 1, 2015, Kissimmee prepays the...
Q: The cash purchase of a building reduces total assets when using accrual basis accounting. A: True or False ?? Goal: Transaction analysis using ACCRUAL-basis accounting. 1. Use the template below to indicate how the following transactions affect the accrual-basis accounting equation: a. Kissimmee, Inc. (a retail store) begins business on January 1, 2015 with a $100,000 cash contribution from the owners. b. On January 1, 2015, Kissimmee hires five employees to manage and operate the business. c. On January...
1. Applying the accounting equation (15 points) a. Total assets of Charter Company equal $700,000 and its equity is $420,000. What is the amount of its liabilities? b. Total assets of Martin Marine equal $500,000 and its liabilities and equity amounts are equal. What is the amount of its liabilities? What is the amount of its equity? 2. Identifying Financial Statements (10 points) Indicate in which financial statement each item would most likely appear: income statement (I), balance sheet (B),...
The Accounting Equation The details of the activities of a company, or transactions, are recorded in a company's accounting system.These transactions are summarized in a set of reports known as the financial statements. The foundation for the accounting system and the financial statements is the accounting equation. Assets = Liabilities + Owner’s Equity The left side of the accounting equation shows the assets of the company: What the company owns. = The right side of the accounting equation summarizes who...
QUESTION: The cash purchase of a building reduces total assets when using accrual basis accounting. o True o False 1. Use the template below to indicate how the following transactions affect the accrual-basis accounting equation: a. Kissimmee, Inc. (a retail store) begins business on January 1, 2015 with a $100,000 cash contribution from the owners. b. On January 1, 2015, Kissimmee hires ſive employees to manage and operate the business. c. On January 1, 2015, Kissimmee prepays the monthly rent...
Q: The sale of inventory increases the inventory balance using accrual-basis accounting. A: True or False ?? Goal: Transaction analysis using ACCRUAL-basis accounting. 1. Use the template below to indicate how the following transactions affect the accrual-basis accounting equation: a. Kissimmee, Inc. (a retail store) begins business on January 1, 2015 with a $100,000 cash contribution from the owners. b. On January 1, 2015, Kissimmee hires five employees to manage and operate the business. c. On January 1, 2015, Kissimmee...