Special purpose framework

Question 1

List 3 Non GAAP special purpose frameworks

Answer 1

1. Cash basis
2. Modified cash basis
3. Tax basis of accounting

Question 2

What is the formula to convert cash basis revenue to accrual basis revenue?

Answer 2

Beg. Cash Revenue
(-) Beginning AR
(+) Ending AR
(+) Beginning unearned revenue
(-) Ending unearned revenue
(=) Accrual revenue

Question 3

How does an increase in Account receivables and Accrued liabilities impact Pretax income from cash basis to Pretax accrual basis?

Answer 3

1. Increase in AR represents an increase in Pretax accrual income (More sales that are not show in cash the basis)
2. Increase In accrued liabilities represent a decrease in Pretax accrual income (More expenses incurred that are not shown in the cash basis)

Question 4

How does a decrease in Account receivables and Accrued liabilities impact Pretax income from cash basis to Pretax accrual basis?

Answer 4

1. Decrease in AR represents a decrease in Pretax accrual income (More sales show in cash basis than what is actually accrued)
2. Decrease In accrued liabilities represent an increase in Pretax accrual income (More expenses paid than incurred)

Question 5

Explain how would an increase in prepaid expenses and a decrease in accrued liabilities impact cash basis expenses to accrual basis expenses?

Answer 5

The impact will represent an overall decrease in expense.

Prepaid expenses (Subtract the cash as expenses have not been incurred)
Prepaid expenses
$100
Cash ——- Expense
$150

Accrued liabilities (Subtract as too much expense does not correspond to the period)
Accrued liabilities
$100
Cash —— Expense
$50