Week Three - Individual Assignment
ACC/300 - Principles of Accounting
Rocio P. Martinez
October 29, 2008
Define accrual accounting and contrast it with cash basis accounting.
In accrual accounting income is reported when the business completes its promise for goods or services no matter when the cash was received. Expenses are recorded when incurred. In cash based accounting, income and expenses are reported when cash is paid and received.
4. What four conditions must normally be met for revenue to be recognized under accrual basis accounting?
1. Persuasive evidence of an arrangement exists
2. Delivery has occurred or services have been rendered
3. The seller's price to the buyer is fixed or determinable
4. Collectibility is reasonably assured
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 Statement |Accrual Basis Income Statement | |Revenues: |Revenues: | |Cash Sales |$6000 | |Inventory purchases | |Revenues...
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