F2 M6 Flashcards
Cash basis, modified cash basis, and tax basis are most commonly used special
purpose frameworks
Guidelines for all special purpose frameworks: Don’t use GAAP, statement of CF is not
required, disclosures in FN of FS should be similar to disclosures of GAAP, and FS
should explain changes in equity accounts
Cash basis: cash recognized when cash is earned and expenses recognized when cash
is paid (used by estates/trusts and political parties/committees)
Cash basis includes a statement of cash and equity (BS) and statement of cash receipts
and disbursements (IS)
In the cash and equity statement, liabilities aren’t recognized
Modified cash basis includes a statement of assets and liabilities (BS) and a statement
of revs collected and expenses paid (IS)
To convert either of these two to accrual basis, all assets and liabilities existing at YE
that are not already included in BS must be added to it with equity equal to the difference
between total assets and liabilities
When converting from cash to accrual basis, just convert everything how I do when I do
SCF direct method (START WITH INCREASE IN ALL ACCOUNTS FROM SCF AND
THOSE WILL BE THE BEGINNING IN CASH BASIS TO ACCRUAL. Ex: In the direct
method for COGS, there would be a + for an increase of inv and a - for a decrease of
inv. For cash to accrual, there would be an increase in beg and a decrease in ending
inv)
If depr exp is given, I will just need to add it to the expenses. If a capital asset is bought,
I will subtract it from expenses (it is not an exp, but cash goes away)
If i need to convert from accrual to cash basis and I am given ending balances in AR and
AP, I should just take the opposite effect that I normally would of them (both -) and
subtract them from the accrual income that I was given
If it asks me if there should be a net loss on the IS under cash basis if there is a
decrease of AR AND ACCR LIABILITIES from beg to ending year, it would be NO for AR
(this meant that MORE CASH WAS COLLECTED - beg AR is higher than ending AR). It
would be Yes for accr liabilities because this means that more cash was paid for the
liabilities (beg accr liab is higher than ending accr liabilities)
Prior year balance refers to BEGINNING and current year refers to ENDING BALANCE
