ACC M115 Lecture Notes - Lecture 8: Share Capital, Balance Sheet, Financial Statement

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orangeminnow841

24 Sep 2020

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The impact of transactions on the financial statements is recognised in the time periods during which revenues and expenses occur rather than when the cash is received or paid. Cash accounting involves recording revenues and expenses at the time the cash is received or paid. E. g. a cash sale of would increase both sales revenue and cash. However, a credit sale of in may with cash collected in july would increase sales revenue in may, but not increase cash until july. When the money is received in july, cash would increase but it would have no impact on revenue. This is regardless of when cash is paid. The balance sheet shows the financial position of an organisation at a point in time. It shows the organisation"s resources and claims on resources at a particular point in time. The three main elements of a balance sheet are: assets, liabilities and shareholder"s.

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(Learning Objective 1: Explain how accrual accounting differs from cash-basis accounting)âHough Consulting had the following selected transactions in July:

July 1 Prepaid insurance for July through September, $4,200.

2 Purchased office furniture for cash, $5,000.

3 Performed consulting services for a client on account, $3,500.

5 Paid advertising expense, $500.

10 Performed consulting services and received cash, $1,500.

20 Purchased a computer on account, $2,500.

25 Collected for July 3 service.

26 Paid account payable from July 20.

29 Paid salary expense, $1,800.

31 Adjusted for July insurance expense (see July 1).

31 Earned revenue of $1,000 that was collected in advance back in June.

31 Recorded July depreciation on fixed assets, $125.

LO USING EXCEL:

1. Show how each transaction would be handled (in terms of recognizing revenues and expenses) using the cash basis and the accrual basis.

2. Compute July income (loss) before tax under each accounting method

3. Indicate which measure of net income or net loss is preferable. Use the transactions on July 3 and July 25 to explain.

Req. 1 & 2
Hough Consulting
Amount of Revenue (Expense) for July
Date		Cash Basis	Accrual Basis
July 1












	Income (loss) before tax	$ -	$ 0

Req. 3

greyplatypus825

(Learning Objective 1: Explain how accrual accounting differs from cash-basis accounting)âHough Consulting had the following selected transactions in July:

July 1 Prepaid insurance for July through September, $4,200.

2 Purchased office furniture for cash, $5,000.

3 Performed consulting services for a client on account, $3,500.

5 Paid advertising expense, $500.

10 Performed consulting services and received cash, $1,500.

20 Purchased a computer on account, $2,500.

25 Collected for July 3 service.

26 Paid account payable from July 20.

29 Paid salary expense, $1,800.

31 Adjusted for July insurance expense (see July 1).

31 Earned revenue of $1,000 that was collected in advance back in June.

31 Recorded July depreciation on fixed assets, $125.

LO USING EXCEL:

1. Show how each transaction would be handled (in terms of recognizing revenues and expenses) using the cash basis and the accrual basis.

2. Compute July income (loss) before tax under each accounting method

3. Indicate which measure of net income or net loss is preferable. Use the transactions on July 3 and July 25 to explain.

sangriallama827

Indicate and explain whether each of the following independentsituations should be treated as a temporary difference or apermanent difference.

(a) For accounting purposes, a company reports revenue frominstallment sales on the accrual basis. For income tax purposes, itreports the revenues by the installment method, deferringrecognition of gross profit until cash is collected.

(b) Pretax accounting income and taxable income differ because80% of dividends received from U.S. corporations was deducted fromtaxable income, while 100% of the dividends received was reportedfor financial statement purposes.

(c) Estimated warranty costs (covering a three-year warranty)are expensed for accounting purposes at the time of sale butdeducted for income tax purposes when paid.

ACC M115 Lecture Notes - Lecture 8: Share Capital, Balance Sheet, Financial Statement

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