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View Full Version : Reporting Cash Basis versus Accrual Basis Income


TEAGANANSEL
May 13, 2008, 09:11 PM
Please help, I'm confused.

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 $ Sales to customers $
Customer deposits
Expenses: Expenses:
Inventory purchases Cost of sales
Wages paid Wages expense
Utilities expense
Cash income $ Net income $

morgaine300
May 14, 2008, 02:02 AM
The trick here is that the accrued basis records revenues and expenses when they happen. The cash basis records revenues and expenses when the cash happens.

I would try going through the list twice. Do it the first time thinking accrued basis, and then do it all again thinking of cash basis. It's easier to get your mind-set going one direction and keep in there and finish. And then start over.

Just as an example, let's say that you do work for someone this month but they do not pay you until next month.

For the accrued basis, you would recognize the earnings in May because that is when you actually did the work. The work is the earnings. So you need to be concentrating on when the earnings happened and ignore the cash.

For the cash basis, you need to pay attention to the cash and ignore the earnings. In this case, the cash is paid to you in June, so the revenue would be recorded in June when you get paid.

Try to use this information and see what you can get done on this.

Rafiel Harri
Sep 17, 2009, 10:59 AM
The trick here is that the accrued basis records revenues and expenses when they happen. The cash basis records revenues and expenses when the cash happens.

I would try going through the list twice. Do it the first time thinking accrued basis, and then do it all again thinking of cash basis. It's easier to get your mind-set going one direction and keep in there and finish. And then start over.

Just as an example, let's say that you do work for someone this month but they do not pay you until next month.

For the accrued basis, you would recognize the earnings in May because that is when you actually did the work. The work is the earnings. So you need to be concentrating on when the earnings happened and ignore the cash.

For the cash basis, you need to pay attention to the cash and ignore the earnings. In this case, the cash is paid to you in June, so the revenue would be recorded in June when you get paid.

Try to use this information and see what you can get done on this. I don't know

morgaine300
Sep 17, 2009, 10:42 PM
Will someone please explain to me why people come on and just say "I don't know."??

(Please also note the thread is over a year old.)