Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
Scribd Logo
Upload

Welcome to Scribd!

  • 4K views

    2018-1383 Samsona, Melanie S.

    Uploaded by

    Melanie Samsona
    The document compares and contrasts the cash basis and accrual basis of accounting. It explains that under the cash basis, revenue is recognized when cash is received and expenses are recognized when cash is paid. The accrual basis recognizes revenue when earned and expenses when incurred, regardless of when payment is made. The cash basis does not recognize accounts receivable or payable, while the accrual basis does. The document then provides a table comparing how different accounting items like sales, income, purchases, and expenses are treated under each method. The second document provides financial information for Potassium for the year 2018 and asks questions to determine accrual basis balances for items like net sales, net purchases, cost of sales, and rent income

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd

    2018-1383 Samsona, Melanie S.

    Uploaded by

    Melanie Samsona
    4K views8 pages
    The document compares and contrasts the cash basis and accrual basis of accounting. It explains that under the cash basis, revenue is recognized when cash is received and expenses are recognized when cash is paid. The accrual basis recognizes revenue when earned and expenses when incurred, regardless of when payment is made. The cash basis does not recognize accounts receivable or payable, while the accrual basis does. The document then provides a table comparing how different accounting items like sales, income, purchases, and expenses are treated under each method. The second document provides financial information for Potassium for the year 2018 and asks questions to determine accrual basis balances for items like net sales, net purchases, cost of sales, and rent income

    Copyright

    © © All Rights Reserved

    Available Formats

    PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    The document compares and contrasts the cash basis and accrual basis of accounting. It explains that under the cash basis, revenue is recognized when cash is received and expenses are recognized when cash is paid. The accrual basis recognizes revenue when earned and expenses when incurred, regardless of when payment is made. The cash basis does not recognize accounts receivable or payable, while the accrual basis does. The document then provides a table comparing how different accounting items like sales, income, purchases, and expenses are treated under each method. The second document provides financial information for Potassium for the year 2018 and asks questions to determine accrual basis balances for items like net sales, net purchases, cost of sales, and rent income

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    4K views8 pages

    2018-1383 Samsona, Melanie S.

    Uploaded by

    Melanie Samsona
    The document compares and contrasts the cash basis and accrual basis of accounting. It explains that under the cash basis, revenue is recognized when cash is received and expenses are recognized when cash is paid. The accrual basis recognizes revenue when earned and expenses when incurred, regardless of when payment is made. The cash basis does not recognize accounts receivable or payable, while the accrual basis does. The document then provides a table comparing how different accounting items like sales, income, purchases, and expenses are treated under each method. The second document provides financial information for Potassium for the year 2018 and asks questions to determine accrual basis balances for items like net sales, net purchases, cost of sales, and rent income

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    of 8

    Melanie S.

    Samsona 2018-1383

    CASH AND ACCRUAL BASIS OF ACCOUNTING


    Compare and contrast cash and accrual basis of accounting.

    The main difference between ​accrual​ and ​cash basis​ accounting lies in the timing of when
    revenue and expenses are recognized.

    Cash Basis of Accounting


    It is a system that recognizes revenue when cash is received and recognizes expenses
    when cash is paid. ​This method does not recognize ​accounts receivable​ or ​accounts payable​.

    Accrual Basis of Accounting


    It is an accounting system that recognizes revenue when earned rather than when cash
    is received and recognizes expenses as it is incurred rather than when cash is paid.

    Items of Comparison Cash Basis Accrual Basis

    Sales Includes: Includes:


    ● Cash sales ● Cash sales
    ● Collection of trade ● Credit sales (sale on
    accounts receivable account)
    ● Collection of trade
    notes receivable

    Income other than sales Includes only those collected Includes those items earned
    during the period during the period

    Purchases Includes the following: Includes:


    ● Cash purchase ● Cash purchases
    ● Payment of trade ● Purchase on account
    accounts payable
    ● Payment of trade
    notes payable
    ● Payment in advance
    to suppliers

    Expenses, in general Includes only those expenses Includes those items that are
    that are paid incurred regardless of when
    paid

    Depreciation Depreciation is typically Depreciation is typically


    provided except when the provided.
    cost of equipment was
    treated as expense

    Bad debts No bad debts expense is Doubtful accounts are treated


    recognized since the cash as bad debts.
    basis does not recognize
    receivables. Although some
    problems may give an
    indication that the accounts
    written off were charged to
    bad debt expense.

    PROBLEM 5-11
    The following balances have been excerpted from Potassium’s Statement of
    Financial Position for the year 2018:
    January 1 December 31

    Accounts receivable 200,000 300,000


    Allowance for bad debts 20,000 30,000

    Merchandise Inventory 380,000 330,000

    Accounts payable 150,000 100,000


    Accounts receivable written off 50,000

    Cash received from customers 1,498,000


    Cash paid to trade creditors 1,200,000
    Sales discounts 20,000

    Purchase returns 10,000


    Rental receivables 70,000 80,000

    Rental payable 60,000 35,000


    Cash received from tenants 120,000

    Additional information:

    ● Collections from customers included customer’s deposit of ₱80,000 of


    which ₱20,000 selling price of goods were already shipped and
    received by the customer. The shipment of goods was not recorded by
    the company although the cost of merchandise was properly excluded
    in the count.
    ● Collections from customers also included ₱30,000 payment from
    customers of accounts receivable in which a check dated January 15,
    2019 was received.
    ● Collections also included recovery of accounts previously written off
    amounting to ₱8,000.
    ● Included in the payment to trade creditors was a check drawn and
    recorded by the company to the supplier in December 2018 amounting
    to ₱20,000 which was delivered to the payee on January 10, 2019.
    ● Also, the company did not record payment to supplier amounting to
    ₱30,000.
    Questions:
    Determine the accrual balance of the following as of December 31, 2018:
    1. Net sales
    a. P 1,400,000
    b. P 1,550,000
    c. P 1,470,000
    d. P 1,570,000
    2. Net purchases
    a. P 1,130,000
    b. P 1,160,000
    c. P 1,140,000
    d. P 1,170,000
    3. Cost of Sales
    a. P 1,180,000
    b. P 1,210,000
    c. P 1,490,000
    d. P 1,220,000
    4. Rent income
    a. P 130,000
    b. P 155,000
    c. P 145,000
    d. P 135,000
    5. Bad debts expense
    a. P 52,000
    b. P 60,000
    c. P 22,000
    d. P 12,000

    Solutions:
    Question no. 1
    Accounts receivable
    Beg. Balance 200,000 300,000 Balance end

    Recoveries 8,000 20,000 Sales discounts

    Sales (squeezed) 1,570,000 1,408,000 Collections including recoveries

    50,000 Accounts written-off

    Total 1,778,000 1,778,000

    Cash received from customers 1,498,000


    Customer’s deposit (80,000)
    Goods already shipped and received 20,000
    Post-dated check (30,000)
    Collections including recoveries 1,408,000
    Sales 1,570,000
    Less: Sales discount 20,000
    Net Sales 1,550,000

    Question no. 2
    Accounts payable
    Payment 1,210,000 150,000 Beg. Balance

    Purchase ret. and allow. 10,000 1,170,000 Purchases (squeezed)

    Balance end 100,000

    Total 1,320,000 1,320,000

    Cash paid to trade creditors 1,200,000


    Undelivered check (20,000)
    Unrecorded payment to supplier 30,000
    Payment 1,210,000

    Purchases 1,170,000
    Less: Purchases discount 10,000
    Net Purchases 1,160,000

    Question no. 3
    Merchandise inventory
    Beg. Balance 380,000 330,000 Balance end

    Net Purchases 1,160,000 1,210,000 Cost of Sales (squeezed)

    Total 1,540,000 1,540,000

    Question no. 4
    Rent Receivable
    Beg. Balance 70,000 80,000 Balance end

    Rent income (squeezed) 130,000 120,000 Collections

    Total 200,000 200,000

    Question no. 5
    Allowance for Doubtful accounts
    Accounts written off 50,000 20,000 Beg. Balance

    Balance end 30,000 52,000 Doubtful acc. exp. (squeezed)


    8,000 Recoveries

    Total 80,000 80,000

    PROBLEM 5-13 Comprehensive

    You are engaged in the audit of the financial statements of Julie Ann Corporation for
    the year ended December 31, 2018. The following information was prepared by the
    bookkeeper.

    Cash receipts:
    Collection on accounts receivable ₱1,513,000
    Less: Cash discounts taken 13,000 ₱1,500,000
    Cash sales of merchandise 160,000
    Sale of warehouse equipment 12,000
    Insurance proceeds from boiler explosion 42,000
    Sale of land on November 3 20,000

    Cash disbursements:
    Payments to trade creditors ₱1,206,000
    General and administrative expenses 204,000
    Cash purchases of merchandise 120,000
    Repairs made on warranty contracts 6,400
    Purchases of land on May 1 16,000
    Purchase on November 10 of 100 shares of Tommy 24,000
    Co. stock

    Supplementary information:

    1. The following account balances were taken from the general ledger:
    December 31, December 31,
    2017 2018
    Accounts receivable ₱124,000 ₱146,000
    Inventory 186,000 190,000
    Prepaid gen. and admin. expenses 9,600 8,400
    Accrued gen and admin. expenses 7,000 9,000
    Accounts payable 382,000 410,000

    2. Depreciation for 2018 was ₱84,000.


    3. The warehouse equipment sold during 2018 was acquired in 2011 at a cost of
    ₱25,000. The double-declining method of depreciation was used and
    accumulated charges were ₱16,000 at date of sale. If the straight-line method
    had been used, the accumulated depreciation at date of sale would have
    been ₱10,000.
    4. An explosion occurred on January 15, 2018 in which a boiler, not the
    structural component of a building, was completely destroyed. It was
    purchased in January 2010 at a cost of ₱48,000, depreciation was recorded
    by the straight-line method and ₱20,000 had accumulated at the date of the
    explosion.
    5. Land was purchased on May 1, 2018 and was used as a storage facility. It
    was found to be unsuitable for this purpose and was sold on November 1,
    2018.
    Questions:
    Based on the above information, compute the adjusted balance of the following accounts as of
    December 31, 2018:
    1. Gross sales
    a. P 1,535,000
    b. P 1,695,000
    c. P 1,522,000
    d. P 1,362,000
    2. Net sales
    a. P 1,522,000
    b. P 1,509,000
    c. P 1,682,000
    d. P 1,349,000
    3. Total purchases
    a. P 1,234,000
    b. P 1,178,000
    c. P 1,298,000
    d. P 1,354,000
    4. Cost of Sales
    a. P 1,350,000
    b. P 1,230,000
    c. P 1,174,000
    d. P 1,358,000
    5. General and administrative expenses
    a. P 204,000
    b. P 207,200
    c. P 211,200
    d. P 204,800
    6. Total operating expenses
    a. P 297,600
    b. P 291,200
    c. P 294,400
    d. P 295,200
    7. Gain or loss on sale of land
    a. P 4,000 gain
    b. P 4,000 loss
    c. P 16,000 loss
    d. Nil
    8. Gain or loss on sale of warehouse equipment
    a. P 5,000 loss
    b. P 13,000 loss
    c. P 3,000 gain
    d. P 12,000 gain
    9. Gain or loss as a result of January 15, explosion.
    a. P 6,000 loss
    b. P 14,000 gain
    c. P 28,000 loss
    d. P 42,000 gain
    10. Net income
    a. P 55,400
    b. P 61,800
    c. P 35,400
    d. P 47,400

    Solutions:
    Question no. 1
    Accounts receivable trade
    Beg.Balance 124,000 146,000 Balance end

    Sales on account (squeezed) 1,535,000 13,000 Salesdiscount

    1,500,000 Collections

    Total 1,659,000 1,659,000

    Sales on account 1,535,000


    Add: Cash sales ​ 160,000
    Total sales 1,695,000

    Question no. 2
    Gross sales 1,695,000
    Less: Sales discount 13,000
    Net sales 1,682,000

    Question no. 3
    Accounts Payable
    Payments 1,206,000 382,000 Beg. Balance

    Balance end 410,000 1,234,000 Purchases (squeezed)

    Total 1,616,000 1,616,000

    Purchases on account 1,234,000


    Add: Cash purchases 120,000
    Total Purchases 1,354,000

    Question no. 4
    Merchandise Inventory
    Beg.Balance 186,000 190,000 Balance end

    Net purchases 1,354,000 1,350,000 Cost of sales (squeezed)

    Total 1,540,000 1,540,000


    Question no. 5
    Prepaid General & Administrative Expenses/Accrued General & Administrative Expenses
    Beg. Balance - Prepaid Interest 9,600 8,400 Balance end - Prepaid Interest

    Balance end – Accrued Interest 9,000 7,000 Beg. Balance – Accrued Interest

    Payments 204,000 207,200 Expenses

    Total 222,600 222,600

    Question no. 6
    General and administrative expense 207,200
    Depreciation expense 84,000
    Warranty expense 6,400
    Total operating expense 297,600

    Question no. 7
    Selling price of land 20,000
    Less: Book value of land 16,000
    Gain on sale of land ​4,000

    Question no. 8
    Selling Price 12,000
    Less: Book value
    Cost 25,000
    Less: Accumulated depreciation 16,000 9,000
    Gain on sale of warehouse equipment 3,000

    Question no. 9
    Selling Price 42,000
    Less: Book value
    Cost 48,000
    Less: Accumulated depreciation 20,000 28,000
    Gain on sale of boiler 14,000

    Question no. 10
    Net sales 1,682,000
    Less: Cost of Sales (​1,350,000)
    Gross Profit 332,000
    Less: Operating expenses 297,600
    Gain on sale (14,000+3,000+4,000) 21,000
    Net income ​55,400

    You might also like