Cash Vs Accrual

Question 1

What is the Balance Sheet Rollforward equation?

Answer 1

Beginning balance
(+) what increases the account
(-) what decreases the account
= Ending Balance

Question 2

What increases and decreases Accounts Payable?

Answer 2

(+) invoices received (we owe)
(-) invoices paid (money going out)

Question 3

What increases and decreases Unearned Revenue?

Answer 3

(+) payment received for revenue we can not recognize (deposit of a new customer)
(-) when we invoice that job at completion (recognize the revenue)

Question 4

What increases and decreases Wages Payable?

Answer 4

(+) wages earned but not yet paid (days worked in the pay period)
(-) paid wages (on pay day)

Question 5

What increases and decreases prepaid rent?

Answer 5

(+) rent payment made ahead (Jan 1 for January)
(-) rent used (Jan 31st, all rent used up)

Question 6

What increases and decreases Accounts Receivable?

Answer 6

(+) credit sales
(-) payment collected

Question 7

On account, means what?

Answer 7

Accrual

Question 8

If you are given _______ information, that means it is on ______ basis

Answer 8

Balance sheet
Accrual

Question 9

What increases & decreases prepaid expense?

Answer 9

(+) paying vendor in advance
(-) uses the expense

Question 10

What increases & decreases accrued liabilities?

Answer 10

(+) receive invoice from Eureka
(-) pay Eureka invoice

Question 11

If cash basis is more than accrual basis, then

Answer 11

There will be a negative impact on the accrual expense (less)
So deduct these less amounts from the cash basis to get to the accrual-basis amount

Question 12

What does it mean to have a “modified”

Answer 12

Revenue & expenses are on the cash basis
But also have balance sheet accounts. ONLY have balance sheet accounts if on the accrual basis

Question 13

What increases & decreases rent receivable?

Answer 13

(+) rent revenue recognized
(-) payment collected
(-) write-offs

Question 14

Cash to Accrual basis how does A/R affect it?

Answer 14

if A/R increases, we add it (we sold more on credit)
If A/R decreases, we subtract (we collected more payment than sold on credit)

Question 15

Cash to Accrual Basis Bridge; how does A/P affect it?

Answer 15

If A/P increases, then it would be a negative change (we charged more than we paid out)
If A/P decreases, then it would be a positive change (we paid more than we charged)

Question 16

Cash to Accrual Bridge: A/R

Answer 16

IF increases from year 1 to year 2 then more credit sales was recognized than cash collected (add bc more accrual recognized than cash collected).
If decreases from year 1 to year 2 then more cash was collected than charged sales was recorded (subtract bc more cash was collected)

Question 17

Cash to Accrual Bridge: A/P

Answer 17

IF increases from year 1 to year 2 then the company charged more to vendors than paid out (subtract bc more expense should be recorded than cash went out)
If decreases from year 1 to year 2, then company paid more to vendors than was invoiced, add bc more cash out of hand than invoices recorded)

Question 18

What is the interest payable rollfoward?

Answer 18

Beginning balance
(+) interest expense accrued according to the note terms
(-) interest expense paid
= ending balance

Question 19

Accrual to Cash bridge:
How does change in A/R and A/P affect this?

Answer 19

IF A/R goes up, then less money in and more invoices given to customers so cash goes down (deduct the difference)
IF A/R goes down, then more money in than invoices given to customers, so cash goes up (add the difference)

IF A/P goes up, then we received more invoices than paid, so cash goes up (add the difference)
IF A/P goes down, we paid more bills than invoices received so cash goes down (deduct the difference)

Question 20

What impacts inventory and how..

Answer 20

Increases when semi is dropped off
Decreases when OSW trucks go on route

Question 21

What is the inventory rollforward equation?

Answer 21

Beginning inventory balance
(+) materials purchased
= COG availabe for sale
(-) cogs
= ending inventory balance

Question 22

What rollforward goes with the inventory rollfoward?
Which one must be completed first?

Answer 22

Accounts Payable
Inventory

Question 23

If A/R increases, what does NCF do?

Answer 23

Decreases bc we didn’t collect money from customers only let them charge our inventory

Question 24

If A/R decreases, what does NCF do?

Answer 24

Increases, bc we collected more cash from customers than we allowed to be charged.

Question 25

What are the two types of qualitative characteristics?

Answer 25

Fundamental & Enhancing

Question 26

What are the Enhancing Qualitative Characteristics?

Answer 26

> Comparability (can yours be compared to your competitors?)
Verifiability (can the accuracy be verified?)
Timeliness (were your reports available in a timely manner?)
Understandability (are they easy to understand?)

Question 27

What are the Fundamental Qualitative Characteristics?

Answer 27

1) Relevance
2) Faithful Representation

Question 28

What is my Relevance Sentence?

Answer 28

predictive value is checked by confirmatory value of all material information presented

Question 29

What is my Faithful Representation Sentence?

Answer 29

When it comes to faithful representation, being COMPLETELY, NEUTRAL will set you FREE of ERRORS

Question 30

Which characteristics are REQUIRED and which are “good to have”?

Answer 30

Required - Fundamental
Good to have - Enhancing

Question 31

What are the four criteria for Recognition in Financials
(Aka define Mr. R)

Answer 31

1) DEFINE - Definitions (item meets the definition of an element of the F/S)
2) M - Measurability (item must have an amount)
3) R. - Relevance (capable of making a difference to the user)
4) R - Reliable (faithful, complete, neutral, free from error)

Question 32

What is considered as supplementary information to the financial statements?
(Explains management’s views on the business)

Answer 32

MD&A
Management Discussion & Analysi

Question 33

What does MD&A consist of?

Answer 33

1) analyze company performance
2) commentary on risks to the business
3) future business projections

Question 34

The omission or misstatement of a financial statement item that will influence user decisions based on a specific entity’s financial information illustrates the concept of ______________.

_________ is a component of ___________.

Answer 34

Materiality
Relevance