Accruals

Question 1

What is an accrual?

Answer 1

when the economic event occurs first

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

You are deferring the recognition of an expense or revenue as an asset or liability

Question 3

Describe events, accounts created and examples for ACCRUALS of revenue and expense

Answer 3

Revenue:
Event - revenue is earned before cash received
Account Created - accrued asset (asset)
Examples - sales on account, interest income, rent (income)

Expense:
Event - expense incurred before cash paid
Account Created - accrued expense (liability)
Examples - salaries, wages, interest, taxes

Question 4

Describe events, accounts created and examples for DEFERRALS of revenue and expense

Answer 4

Revenue:
Event - cash received before revenue earned
Account Created - deferred revenue (liability)
Examples - rent (income), subscriptions, gift certificates

Expense:
Event - cash paid before expense incurred
Account Created - deferred expense (asset)
Examples - prepaid insurance, supplies, rent (expense), PP and E

Question 5

what is the cash collection equation?

Answer 5

Beg Balance + Sales - Collections - write-offs = End Balance

Question 6

Accrual to Cash equation

Answer 6

Cash = L + E - OA

Question 7

Cash to Accrual equation

Answer 7

E = A - L