Please describe the accounting cycle in clear, concise terms,understandable by non-accountants. Define terms, and include the"what" and "why" of the accounting cycle in the description. Pleaseuse an example transaction to help in your description, and use"cash paid for advertising" expense.
Please describe the accounting cycle in clear, concise terms,understandable by non-accountants. Define terms, and include the"what" and "why" of the accounting cycle in the description. Pleaseuse an example transaction to help in your description, and use"cash paid for advertising" expense.
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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.
