BACK TO THE BASIC. IF U KNOW SHIT, THIS PLACE IS YOUR PLACE Flashcards
why Assets = Liabilities + Owners’ equity. is 2 side nature ?
Business accounting is based on the two-sided nature of the accounting equation. Both assets and sources of assets are accounted for, which leads, quite naturally, to double entry accounting.
Cash-basis accounting refers to ? who used it
keeping a record of cash inflows and cash outflows.
An individual uses cash-basis accounting in keeping his checkbook because he needs to know his day-to-day cash balance and he needs a journal of his cash receipts and cash expenditures during the year for filing his annual income tax return
Cash-basis accounting doesn’t provide
the information that
managers need to run a business or the information needed to prepare company tax
returns and financial reports. Some small personal service businesses (such as barber shops, lawyers, and real estate brokers) can get by using cash-basis accounting because they have virtually no assets other than cash and they pay their bills right away.
The large majority of businesses use….. and why ?
accrual-basis accounting.
They keep track of their
cash inflows and outflows, of course, but accrual-basis accounting allows them to
record all the assets and liabilities of the business
accrual-basis accounting
keeps track of ? What has a major scope.
of the money invested in the business by its owners and the accumulated
profit retained in the business.
In short, accrual-basis accounting has a much broader
scope than cash-basis accounting.
A big difference between cash- and accrual-basis accounting concerns
how they measure annual profit of a business.
With cash-basis accounting, profit simply equals the total of cash inflows from sales minus the total of cash outflows for expenses of making sales and running the business, or, in other words, the net increase in cash from sales and expenses.
With the accrual-basis accounting method, profit is
measured differently
because the two components of profit — sales revenue and expenses — are recorded
differently
using accrual-basis accounting, a business records sales revenue when a sale is
made and the products and/or services are delivered to the customer, whether the
customer pays cash on the spot or receives credit and doesn’t pay the business until
sometime later.
Cash-basis accounting doesn’t reflect
economic reality for businesses that sell and buy on credit, carry inventories of products for sale, invest in long-lived operating assets,
and make long-term commitments for such things as employee pensions and retirement benefits
sales revenus
cash receipts +year end receivables
cost products sold
cash payment + year end receivable
other expense
cash payment + years end liability
net loss
sales revenues -
cost of products sold
