F2-M7 Special Purpose Framework

Question 1

When converting cash to accrual how are prepaid expenses treated?

Answer 1

They are assets so they are subtracted from the total operating expense amount.

Question 2

How is revenue accounted for under accrual?

Answer 2

It is counted for all sales applicable for that year regardless of when cash is collected.

Question 3

Under accrual how is accounts payable treated

Answer 3

If A/P when down it represents an increase to NI, since it under accrual it was already recognized as an expense.