Name: Ernie Jane G.

Villanueva Date: April 2,2022

Topic#: CASH BASIS Vs. ACCRUAL BASIS
OBJECTIVES:

CASH BASIS ACCRUAL BASIS

Sales
COGS
Other income
OPEX
NET INCOME

ACCRUAL BASIS
Statement of comprehensive income
For the year ended December 31,2020
ACCRUAL BASIS
NET SALES XX
COGS ( XX)
GROSS PROFIT XX
Other income xx
OPEX ( XX)
Profit before tax XX
NET SALES (ACCRUAL BASIS)
ACCOUNTS RECEIVABLES

Beg, XX
SALES (squeeze) XX Collection XX
Recovery XX Collection WO XX
Write off XX
Return XX
Discount XX
ENDING XX
COGS (ACCRUAL BASIS) ACCOUNTS PAYABLE(purchases)
Inventory Beg, xx A.P Beg xx
Payment xx Purchases (squeeze) xx
Purchases XX Return xx
Discount xx
Inventory end XX
COGS XX A.P End xx

Other income (ACCRUAL BASIS)

ACCRUED INCOME UNEARNED INCOME

Beg. xx Beg. xx

Other income xx Collection xx Other income xx Collection xx

ENDING Ending xx

OPEX (ACCRUAL BASIS)

PREPAID EXPENSE ACCRUED EXPENSE

Beg. xx Beg. xx

Payment xx Expensed incurred xx Payment xx Expensed incurred xx

ENDING XX ENDING XX

CASH BASIS
Statement of comprehensive income
For the year ended December 31,2020
CASH BASIS
NET SALES XX
COGS ( XX)
GROSS PROFIT XX
Other income xx
OPEX ( XX)
Profit before tax XX
 NET SALES (CASH BASIS)
ACCOUNTS RECEIVABLES

Beg, XX
SALES XX Collection XX
Recovery XX Collection WO XX
Write off XX
Return XX
Discount XX
ENDING XX

COGS (CASH BASIS) ACCOUNTS PAYABLE(purchases)

Inventory Beg, xx
A.P Beg xx
Purchases XX Payment (squeeze) XX Purchases xx
Inventory end XX Return xx
Discount xx
COGS XX
A.P End xx

Other income (CASH BASIS)

ACCRUED INCOME UNEARNED INCOME

Beg. xx Beg. xx

Other income xx Collection xx Other income xx Collection xx

ENDING Ending xx

OPEX (CASH BASIS)

PREPAID EXPENSE ACCRUED EXPENSE

Beg. xx
Beg. xx
Payment xx Expensed
incurred xx Payment Expensed incurred xx
xx
ENDING XX
ENDING XX
PROBLEM:
Accrual Basis Vs. Cash Basis-Income statement
Gerald Company had the ff. account balances for 2021
December 31 January 1
Acc. Payable 500,000 650,000
Inventory 300,000 250,000
Acc. Receivable 800,000 900,000
Prepaid expense 400,000 600,000

 All sales and purchases of inventory were on account

 Depreciation expense of 900,000 was recognized during 2021
 Equipment was sold during 2021 and a gain of 300,000 was recognized
The entity provided the ff. cashflow information for 2021
Cash collected from customers 9,500,000
Cash paid to suppliers 4,100,000
Cash paid for other expenses 1,400,000

1.What is the net income under accrual basis?

ANS: 3,300,000
SOLUTION:
Net sales
Acc. Receivable

Beg. 900k Collection add ending= 10,200,000-

Sales 9,400,000 Collection 9,500,000 900k= 9,400,0000

ENDING 800k
COGS
Inventory Beg, 250,000
Purchases 3,950,000
Less: Inventory end (300,000)
COGS 3,900,000
Accounts payable

Ap Beg 650,000 650,000 less 4,100,000= -

Payment 4,100,000 Purchases 3,950,000 3,450,000 so change the sign
( 3,450,000 add 500k= 3,950,000
Ap end 500,000

Prepaid expense

P e Beg, 600k 600K plus 1,400,000=2m less 400k=

Payment 1,400,000 1,600,000
Expenses Incurred 1,600,000
END 400,000
Statement of comprehensive income
For the year ended December 31,2020
ACCRUAL BASIS
NET SALES 9,400,000
COGS (3,900,000)
GROSS PROFIT 5,500,000
Other income 300,000 (Equipment)
OPEX (1,600,000)
Depreciation (900,000)
NET INCOME 3,300,000
PROBLEM
2. What is the net income under cash basis?
ANS:
SOLUTION:
Net sales
Acc. Receivable

Beg. 900k Collection add ending= 10,200,000-

Sales 9,400,000 Collection 9,500,000 900k= 9,400,0000

ENDING 800k
COGS
 Inventory Beg, 250,000
Purchases 4,100,000
Less: Inventory end (300,000)
COGS 4,050,000
Accounts payable

Ap Beg 650,000 650,000 less 4,100,000= -

Payment 4,100,000 Purchases 3,950,000 3,450,000 so change the sign
( 3,450,000 add 500k= 3,950,000
Ap end 500,000

Prepaid expense

P e Beg, 600k 600K plus 1,400,000=2m less 400k=

Payment 1,400,000 1,600,000
Expenses Incurred 1,600,000
END 400,000
Statement of comprehensive income
For the year ended December 31,2020
CASH BASIS
NET SALES 9,500,000
COGS (4,050,0000
GROSS PROFIT 5,450,000
Other income 300,000
OPEX ( 1,400,000)
Depreciation ( 900,000)
NET INCOME 3,450,000

PROBLEM
Cash basis to accrual basis-single account
Kinesis Company paid or collected during 2021 the ff. items:
Insurance premiums paid 25,450
Salaries Paid 116,300
Interest Collected 53,750
The ff. balances were from Kinesis Company’s balance sheets:
December 31,2020 December 31,2021
Prepaid insurance 2,400 1,700
Interest receivable 4,700 3,200
Salaries payable 12,300 10,600

3.The insurance expense on the income statement for 2021 was?

ANS: 26,150
SOLUTION:
Prepaid expense

P e Beg, 2,400 2,400plus 25,450=26,850 less

Payment 25,450 1,700= 26,150
Expenses Incurred 26,150
END 1,700

4. The interest revenue on the income statement for 2021 was?

ANS: 52,250
SOLUTION:
ACCRUED INCOME 53,750 PLUS 3,200 -4,700

Beg.
4,700

Other income Collection 53,750 5.The salary expense on the income

52,250 statement for 2021 was?
ENDING 3,200
ANS:114,600
SOLUTION:
ACCRUED EXPENSE

Beg. 12,300

Payment 116,300 Expensed incurred 114,600

ENDING 10,600
PROBLEM
Martyr Company paid or collected during 2021 the ff items
Interest revenue 75,500
Insurance expense 9,600
Salaries expense 65,000
The ff. balanced were from Martyr Company’s balance sheets:
December 31,2021 December 31,2020
Interest receivable 7,500 9,100
Salaries payable 4,200 8,900
Prepaid insurance 1,500 1,100

6.The cash received for interest during 2021 was

ANS:77,100
SOLUTION:
ACCRUED INCOME 9,100+75,500-7,500

Beg. 9,100

Other income 75,500 Collection 77,100

ENDING 7,500

7.The cash paid for salaries during 2021 was

ANS:69,700
SOLUTION:
ACCRUED EXPENSE

Beg. 8,900

Payment 69,700 Expensed incurred 65,000

ENDING 4,200
8.The cash paid for insurance during 2021 was
ANS: 10,000
SOLUTION:
Prepaid expense

P e Beg, 1,100 9,600 + 1500=11,100-1,100=10,000

Payment 10,000
Expenses Incurred 9,600
END 1,500

CASH BASIS vs. ACCRUAL BASIS

Accrued income

Beg. Of accrued Unearned income Beg. Of unearned

income income
Beg. xx Beg. xx

OFFSET Other income xx Collection xx

ENDING!!! Ending xx Ending xx

ACCRUED INCOME XX ACCRUED INCOME X

UNEARNED INCOME XX X
ACCRUED INCOME XX UNEARNED INCOME X
X
UNEARNED INCOME X
PROBLEM X
ACCRUAL BASIS TO CASH BASIS-Dual Account,Income
9.Under accrual basis, rental income of Lion’s Pride Company for the current calendar year is
60,000. Additional information regarding rental income are:
Accrued rental income, December 31 4,000
Accrued rental income, January 1 3,000
Unearned rental income, December 31 7,500
Unearned rental income, January 1 5,000
How much actual cash rental was received by lions Pride company in the current year?
ANS: 61,500
 SOLUTION:
Accrued income

Beg. Of accrued Unearned income Beg. Of unearned

income income
Beg. 3,000 Beg. 5,000

OFFSET Other income 60,000 Collection

ENDING!!! 61,500
Ending xx Ending 3,500

60,000 PLUS 3,000= 63,000 PLUS 3,500=66,500-5,000=61,500

ACCRUED INCOME 4,00

0
UNEARNED INCOME 7,50
0
UNEARNED INCOME 3,50
PROBLEM 0
10.Time of Babe Co has the ff. information:
Accrued rent income-January 1 1,600,000
Accrued rent income- December 31 800,000
Unearned rent-January 1 1,200,000
Unearned rent-December 31 2,000,000
Rental payments received 4,000,000
How much is the rent income under accrual basis of accounting?
ANS: 2,400,000
SOLUTION:
Accrued income

Beg. Of accrued
Unearned income Beg. Of unearned
income income
Beg. 1,600,000 Beg.
1,200,000
OFFSET
ENDING!!! Other income 2.4 M Collection 4M
Ending xx Ending 1,200,000
1,200,000+ 4,000,000=5,200,000
5,200,000-1,200,000-1,600,000=2,400,000 ACCRUED INCOME 800K
UNEARNED INCOME 2M
UNEARNED INCOME 1.2
M

CASH BASIS vs. ACCRUAL BASIS

Prepaid expense

Beg. Of prepaid Accrued expense Beg. Of accrued

expense expense
Beg. xx Beg. xx

OFFSET Payment xx Expensed incurred

ENDING!!! xx
Ending xx Ending xx

Prepaid expense XX Prepaid expense X

Accrued expense XX X
PREPAID EXPENSE XX Accrued expense X
X
ACCRUED EXPENSE X
X
PROBLEM
11.Elemental Company borrows money under various loan agreement involving notes
discounted and notes requiring interest payments at maturity. During the current year ended
December 31, Elemental paid interest totaling 5,000,000. The balance sheets included the ff.
December 31 January 1
Interest payable 2,500,000 2,000,000
Prepaid interest 1,500,000 500,000
How much interest expense should Elemental report for the current year?
ANS:4,500,000
SOLUTION:
Prepaid expense

Beg. Of prepaid Accrued expense Beg. Of accrued

expense expense
Beg. 500,000 Beg. 2,000,000

OFFSET Payment Expensed incurred

ENDING!!! 5,000,000 4,500,000
Ending xx Ending 1,000,000

500K+5M=5.5M+1M=6.5M-2M=4.5M Prepaid expense 1.5

M
Accrued expense 2.5
PROBLEM ACCRUED EXPENSE 1M

12.Lind Company reported operating expenses of 285,000 for 2020.The ff. data were
extracted from the company’s financial records:
December 31,2019 December 31,2020
Prepaid expenses 60,000 69,000
Accrued expenses 210,000 255,000
On a statement of cashflow for 2020, using the direct method, cash payments for opex should
be:
ANS: 249,000
SOLUTION:
Prepaid expense

Beg. Of prepaid
Accrued expense Beg. Of accrued
expense expense
Beg. 60,000 Beg. 210,000

OFFSET Payment 249,000 Expensed incurred

ENDING!!! 285,000
Ending xx Ending 186,000

210,000+285,000=495,000-186,000=309,000-60,000=249,000 Prepaid expense 69K

Accrued expense 255K
ACCRUED EXPENSE 186K