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3. Define accrual accounting and contrast it with cash basis accounting. Accrual accounting realizes accounting changes as the revenue and expenses during the period in which it occurs. You will see the cash method used by small businesses because cash in hand is king and they cannot afford to count it any other way. So cash base is simply that you count it when it is actually received and the same goes for any expenses, they are counted when taken. 4. What four conditions must normally be met for revenue to be recognized under accrual basis accounting? . Earnings process is complete 2. Transaction of exchange is noted 3. Revenue is recognized 4. Process is completed M3-2 Reporting Cash Basis versus Accrual Basis Income Mostert Music Company had the following transactions in March: a. Sold instruments to customers for $10,000; received $6,000 in cash and the rest on account. The cost of the instruments was $7,000. b. Purchased $4,000 of new instruments inventory; paid $1,000 in cash and owed the rest on account. c. Paid $600 in wages for the month. d.
Received a $200 bill for utilities that will be paid in April. e. Received $1,000 from customers as deposits on orders of new instruments to be sold to the customers in April. Complete the following statements: Cash Basis Income StatementAccrual Basis Income Statement Revenues: Revenues: Cash Sales$6,000. 00 Sales to customers $6,000. 00 Customer Deposites$1,000. 00 Expenses:$200. 00 Expenses: $1,000. 00 Inventory Purchases$4,000. 00 Cost of Sales $0. 00 Wages Paid$600. 00 Wages Expenses $600. 00 Utilities Expenses $0. 00
Cash Income$2,200. 00 Net Income $5,600. 00 Week Three Textbook Assignment – Troy Ives Prepare responses to Part A of Problem 1-30A from Ch. 1 of Fundamentals of Financial Accounting Concepts. PROBLEM 1–30A Interrelationships among Financial Statements O’Shea Enterprises started the 2002 accounting period with $30,000 of assets (all cash), $18,000 of liabilities, and $4,000 of common stock. During the year, O’Shea earned cash revenues of $48,000, paid cash expenses of $32,000, and paid a cash dividend to stockholders of $2,000.
O’Shea also acquired $10,000 of additional cash from the sale of common stock and paid $6,000 cash to reduce the liability owed to a bank. Required a. Prepare an income statement, statement of changes in stockholders’ equity, period-end balance sheet, and statement of cash flows for the 2002 accounting period. (Hint: Determine the amount of beginning retained earnings before considering the effects of the current period events. It also might help to record all events under an accounting equation before preparing the statements. •Prepare an income statement Assets=LiabilitiesOwners Equity Revenues$48,000. 00 Expenses$-32,000. 00 Income (Net)$16,000. 00 •Statement of changes in stockholders’ equity Assets=LiabilitiesOwners Equity Common stock$4,000. 00 Sales of stock$10,000. 00 $14,000. 00 Ret. Earnings$8,000. 00 Income (Net)$16,000. 00 Pd. Dividends$-2,000. 00 Ret. Earnings$22,000. 00 Equity$36,000. 00 •Period-end balance sheet Assets=LiabilitiesOwners Equity Assets$48,000. 00 Total Assets$48,000. 00 Liabilities$12,000. 0 Owners equity$36,000. 00 Total (liabilities + equity)$48,000. 00 •Statement of cash flows for the 2002 accounting period Assets=LiabilitiesOwners Equity Customers Rcpts (Cash)$48,000. 00 Operating Expenses (Cash)$-32,000. 00 Net Cash$16,000. 00 Common Shares (sold)$10,000. 00 Payback Loan (bank)$-6,000. 00 Payment dividend$-2,000. 00 $2,000. 00 Net Cash$18,000. 00 Cash at start$30,000. 00 Cash at end$2,000. 00$4,8000. 00 CHECK FIGURES a. Net Income: $16,000 b. Total Assets: $48,000