Prepare Responses to Questions 3 & 4, and Mini-Exercise M3-2, from Ch. 3 of Fundamentals of Financial Accounting.

Topics: Generally Accepted Accounting Principles, Balance sheet, Revenue Pages: 3 (643 words) Published: August 30, 2010
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? 1.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...
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