Evaluate how the appearance of solvency for a business changes when using cash vs. accrual accounting, noting which stakeholders might be affected and how.
Evaluate how the appearance of solvency for a business changes when using cash vs. accrual accounting, noting which stakeholders might be affected and how.
Homework Answers
When a business uses cash accounting system, solvency is measured only through the cash receipts and the net cash available for further business transactions. The net cash flow i.e. receipts minus payments must be sufficient enough for the sustainability of the business.
In the accrual system, the short term solvency is measured through ratios such as current ratio, liquid ratio to determine if the firm has sufficient current assets to pay off its short term obligations. Long term solvency is measured to debt equity ratio, interest coverage ratio to determine if the business is able to meet its long term obligations.
If the firm uses cash accounting system, the stakeholders that might be effected are the owners and the taxation authorities. The reason being there are no payables or receivables in cash accounting, hence the owners or stockholders are primarily affected for profitability and sustainability. Also, taxation authorities keep an eye on the nature of accounting used to determine if the business has paid appropriate taxes.
If the business uses accrual accounting a wide gamut of stakeholders are involved viz., creditors and lenders primarily for the repayment of their debt, stockholders for profitability and sustainability, taxation authorities to determine the taxes and employees for their growth.
Add Answer to:
Evaluate how the appearance of solvency for a business changes when using cash vs. accrual accounting, noting which stakeholders might be affected and how.
Summarize, using moral reasoning, cash or accrual basis accounting systems in relation to the selected business...
Summarize, using moral reasoning, cash or accrual basis accounting systems in relation to the selected business entity. Consider how the accounting system impacts revenue recognition, consistent with Internal Revenue Code and Treasury regulations. Required 1- Differentiate between accrual accounting and cash basis. 2-Based on the type of business and the client’s accounting system, what is the impact when revenue is recognized?
Which of the following statements about cash basis accounting and accrual basis accounting is correct? Multiple...
Which of the following statements about cash basis accounting and accrual basis accounting is correct? Multiple Choice 1 O If payment is received at the same time a service is provided, it does not matter whether cash basis accounting or accrual basis accounting is used; both would record the transaction with the same journal entry The cash basis of accounting works best when a lengthy delay exists between the timing of cash flows and the underlying business activities to which...
1) If a company is using accrual basis accounting, when should it record revenue? A) when...
1) If a company is using accrual basis accounting, when should it record revenue? A) when cash is received, even though services may be performed at a later date B) when services are performed, even though cash may be received at a later date C) before services are performed D) when cash is received, 30 days after the completion of the services 2) When does a company account for revenue if it uses cash basis accounting? A) when services are...
Q1: How has globalization affected your sample business? What possible changes might it cause for such...
Q1: How has globalization affected your sample business? What possible changes might it cause for such a business in the next ten years? Q2: Do you think major corporations should put social responsibility above, below or at the same level as the financial return to stockholders?
Q: The cash purchase of a building reduces total assets when using accrual basis accounting. A:...
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...
QUESTION: The cash purchase of a building reduces total assets when using accrual basis accounting. o...
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...
Which basis of accounting, cash basis or accrual basis, provides a better economic indicator of how...
Which basis of accounting, cash basis or accrual basis, provides a better economic indicator of how profitable a company is? a. cash basis b. it depends on what industry a company is in c. accrual basis d. cash or accrual are equally good economic indicators 2. What two major sources of a company's financing are reflected on the balance sheet? a. borrowing, owner investment b. public financing, private financing c. venture capital, borrowing d. common stock, preferred stock
1. Revenue recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provides doorbell repair...
1. Revenue recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provides doorbell repair services to customers. The accountant for Ring The Bells noted the following events which took place during April, 2018: • On April 4th, Ring the Bells received $725 in cash from customers for services that had been provided in March, 2018 on account. • On April 11th, provided $280 worth of services to customers on account. Cash payment for these services will not be...
LOL What is the difference between cash basis accounting and accrual basis accounting a) Which method...
LOL What is the difference between cash basis accounting and accrual basis accounting a) Which method records transactions only when cash is received? b) Which method records transaction when it occurs, regardless of when the cash is paid? L02. What concepts and principles apply to accrual basis accounting a) Match the concept (by number) to the correct terminology. 1. Time period concept 2. Revenue recognition principle 3. Matching Principle 4. Fiscal year __An accounting time period that may not coincide...
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 accounting equation (pp. 14-15). 1. Consider the following two cash-basis equations: 1 Assets/Resources = Shareholders’ Equity (SHE) 2 Cash = Contributed Capital + Earned Capital a. The second equation simply portrays assets (or resources) from the first equation as containing one component, Cash; and Shareholders’ Equity from the first equation as containing two components: 1) contributed capital, and 2) earned capital. b. Owners contribute capital to the business, with the expectation that managers will...
Which of the following statements about cash basis accounting and accrual basis accounting is correct? Multiple Choice 1 O If payment is received at the same time a service is provided, it does not matter whether cash basis accounting or accrual basis accounting is used; both would record the transaction with the same journal entry The cash basis of accounting works best when a lengthy delay exists between the timing of cash flows and the underlying business activities to which...
1) If a company is using accrual basis accounting, when should it record revenue? A) when cash is received, even though services may be performed at a later date B) when services are performed, even though cash may be received at a later date C) before services are performed D) when cash is received, 30 days after the completion of the services 2) When does a company account for revenue if it uses cash basis accounting? A) when services are...
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...
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...
LOL What is the difference between cash basis accounting and accrual basis accounting a) Which method records transactions only when cash is received? b) Which method records transaction when it occurs, regardless of when the cash is paid? L02. What concepts and principles apply to accrual basis accounting a) Match the concept (by number) to the correct terminology. 1. Time period concept 2. Revenue recognition principle 3. Matching Principle 4. Fiscal year __An accounting time period that may not coincide...
Most questions answered within 3 hours.
-
The first stock pays a current dividend of $2 which is growing
at 3% per year....
asked 3 minutes ago -
Assume an array list is declared as follows:
int list[100]
and that all other variables have...
asked 12 minutes ago -
Do you believe that as the pool of engineers decrease, or become
in higher demand, that...
asked 20 minutes ago -
A
700 kg car is coasting along a level road, slowing down at an
acceleration of...
asked 29 minutes ago -
find dB IL for a sound with the intensity of 3x10^-13 w/sq meter
with a reference...
asked 30 minutes ago -
Case 7-3: Wentworth Hospital Discussion Questions: essay
paragraph
Is there anything irregular here?
What is your...
asked 32 minutes ago -
1- A) How many milliliters of 0.100 M NaOH are needed to
neutralize 50.00 mL of...
asked 49 minutes ago -
It is determined that a reaction is 1st order in [BrO3-], 1st
order in [Br-] and...
asked 51 minutes ago -
Write a JavaScript program to implement the Least-Squares Linear
Regression algorithm shown below, for an arbitrary...
asked 1 hour ago -
Determine the solubility of Cadmium in equilibrium with Cadmium
hydroxide, Cd(OH)2, as a function of pH....
asked 1 hour ago -
When 34.2 grams of strontium reacts with excess molecular
oxygen, how many grams of the product...
asked 1 hour ago -
nformation related to the Berkley Company for the calendar year
2015 follows:
Liabilities, December 31, 2015...
asked 1 hour ago