F2 - M7 - Special frameworks

Question 1

Does everything have to be presented under GAAP?

Answer 1

No, there are other standards you can use and that is called OCBOA.

The three main ones are cash, modified cash, and tax basis.

Question 2

What type of entities normally use cash basis?

Answer 2

Estates and trusts, civic ventures, political campaigns, political committees.

Question 3

What is the balance sheet called under modified cash basis?

Answer 3

Statement of assets and liabilities or, statement of assets and liabilities arising from cash transactions.

Question 4

Why might a company want to go from cash to accrual for their financial statements?

Answer 4

A bank requires it for a loan, or maybe the want to go public on the stock exchange.

Question 4

For going from cash to accrual basis, how would you convert cash basis revenue to accrual basis revenue?

Answer 4

You would take your cash basis revenue, add ending AR and subtract beginning AR.

In accrual, your ending AR is money that you earned in the current period, but you didn’t get the cash. The beginning AR is money that you earned in prior periods so you want to subtract those out.

You also want to subtract ending unearned revenue, and add back beginning unearned revenue.

Think about it, under cash, you record the money when you get it. So beginning unearned revenue is money that you earned throughout the year, and ending unearned revenue is money that you got in the year but have not earned yet.

Question 5

For going from cash to accrual basis, how would you convert cash basis purchases to accrual basis COGS?

Answer 5

You start with your cash you paid for purchases and
+ Ending AP
- Beginning AP
- Ending Inventory
+ Beginning inventory

Question 6

What is the formula for converting cash paid for operating expenses to the accrual basis?

Answer 6

Cash paid for operating expenses
+ Ending accrued liabilities
- Beginning accrued liabilities
- Ending prepaid expenses
+ Beginning prepaid expenses