M7 - Special Purpose Frameworks

Question 1

Which adjustments are needed to convert cash receipts to revenues as reported on an accrual basis? (think 4 of them)

Answer 1

1. Add ending accounts receivable
2. Subtract beginning accounts receivable
3. Subtract ending unearned (or deferred) revenue
4. Add beginning unearned (or deferred) revenue

Question 2

What are the steps to convert Cash Basis revenue to Accrual Basis revenue?

Answer 2

Cash Basis
+ End AR
- Beg AR
- End unearned rev
+ Beg unearned rev
= Accrual Basis

Question 3

What are the steps to convert Cash paid for purchases to COGS? (Cash -> Accrual)

Answer 3

Cash paid for purchases
+ End AP
- Beg AP
- End Inventory
+ Beg Inventory
= COGS