Accrual Accounting

Question 1

What is an Accrual?

Answer 1

When the economic event occurs first (A/R), you create an accrual account. (You are accruing the cash owed or to be paid as an asset or liability.)

Question 2

What is a Deferral?

Answer 2

When the cash activity occurs first (prepaid), you create a deferral account. (You are deferring the recognition of an expense or revenue as an asset or liability.)

Question 3

Accrual to Cash Net Income Formula

Answer 3

Change in Cash = Change in Liabilities + Change in Equity - Change in Other Assets

Question 4

Cash to Accrual Net Income Formula

Answer 4

Change in Equity (N.I.) = Change in Assets - Change in Liabilities

Question 5

T-Accounts

Answer 5

Used to solve for accrual basis revenue or expense and for cash received or paid