2-8 Cash to Accrual

Question 1

What basis of accounting is required by GAAP?

Answer 1

Accrual-basis

Question 2

Accrual-basis

Answer 2

Records expenses when incurred and revenues when performance obligations are met

Question 3

Cash-basis

Answer 3

Generally only records an entry upon the exchange of cash

Question 4

Conversion of Receipts (Cash Basis) to Revenue (Accrual Basis)

Answer 4

Cash receipts from customers (Cash Basis)
- Beginning AR
\+ End AR
\+ Beginning Deferred Revenue
- End Deferred Revenue
= Revenue (Accrual Basis)

Question 5

Conversion of Disbursements (Cash Basis) to Operating Expenses (Accrual Basis)

Answer 5

Cash paid for operating expenses (Cash Basis)
\+ Beginning prepaid expense
- End prepaid expense
- Beginning accrued liabilities
\+ End accrued liabilities
= Operating Expenses (Accrual Basis)