ACCTG311 Lecture Notes - Lecture 3: Accrual, Accounts Receivable, Toronto Stock Exchange

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erinwasp633

25 Nov 2014

School

University of Alberta

Department

Accounting

Course

ACCTG311

Professor

Kristie Dewald

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Document Summary

In a cash based accounting system, revenue is recorded when cash is received. Industrial equipment ltd. manufactures and sells parts used in various types of heavy equipment. The most popular parts sold are those for graders. Since they were manufacturing a number of parts for graders already, industrial decided to expand its operations to manufacture and sell their own brand of grader. Industrial was able to persuade management at northern alberta construction co. (nacc) to purchase a grader. Industrial received an order from nacc at the end of. August for 1grader to be delivered in october. Nacc intends to provide one year warranties, but in order to get the nacc order, industrial agreed to a 2-year warranty on this initial unit. The specific events relating to this order for year 1are: Industrial receives a signed, binding purchase order for a grader. Industrial orders the materials needed to manufacture the grader.

Related Questions

Identify the applicable accounting convention for the following business scenario and explain your choice

The Morrison Company receives much of its revenue from those customers who buy or rent furniture and appliances on the installment plan. Because the company uses an accrual-based accounting system, revenue is recognized at the point of sale, even though cash comes in on a monthly basis from customers. Lately, the company's accountant is questioning the use of the accrual basis for recognizing revenue, because several customers have defaulted on their contracts, causing problems in the accounting system.

1. Undercash-basis accounting, when is revenue recorded? When is itrecorded under accrual-basis accounting?

2. Under accrualaccounting, when is revenue considered earned?

3. If amembership represents an advance payment for services provided,when is it recognized as revenue under the accrual basis, and whatis it called?

4. Why isinsurance expense spread over multiple periods even though thepolicy coverage is paid in advance?

5. At the end ofthe month for Silverâs Gym, what entries need to be made under thecash basis of accounting for wages that have not yet been paid?What entries need to be made under the accrual method?

6. Why is itimportant to match expenses and revenues to reflect the performanceof a business over a particular time period?

7. When mightthe use of cash basis accounting overstate the actual profitsearned by Silverâs gym? When might it understate the actual profitsearned?

8. Which basisof accounting is in accordance with GAAP for large companies?

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Which of the following accounting concepts prescribes that a company record its expenses incurred to generate the revenue reported?

- revenue recognition principle

- business entity assumption

- expense recognition principle

-cost principle

Internal control procedures for cash receipts DO NOT require that

- custody over cash is kept separate from its recordkeeping

- All collections for sales are received immediately upon making the sales

- Clerks having access to cash register should not have access to the register tape or file

-cash sales should be recorded on the cash register at the time of each sale

The Principles of internal control include:

- separate recordkeeping from the custody of assets

- maintain minimal records

- Bond all employees

-require automated sales system

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ACCTG311 Lecture Notes - Lecture 3: Accrual, Accounts Receivable, Toronto Stock Exchange

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