F2 Matching (Revenue & Expenses)

Question 1

Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period of:

Answer 1

No-Accounts Receivable; Yes- Accrued expenses payable.

A net decrease in A/R means cash collected exceeds revenue recognized on the accrual basis. This would mean higher cash basis income than accrual basis income.

A net decrease in Accrued Expenses means cash paid to reduce Accrued Expenses was more than the accrual basis expense recorded. This would mean a higher expense under the cash basis than under the accrual basis.

Question 2

Research and development expenses under U.S. GAAP

Answer 2

Under U.S. GAAP, Research and development includes costs incurred prior to technological feasibility for developed software that is to be sold, leased or marketed. If software is for internal use, unrelated to production then it is not considered research and development. Market research is also not research and development because it is not aimed at discovery of new knowledge to develop a new product or service.