Week 3 Flashcards
Where is the main distinction between cash and accrual accounting
In the interpretations of income and expenses
What needs to be known before transaction analysis can begin
The distinction between cash and accrual accounting
When are transactions recorded in cash basis accounting
When cash is actually received or paid
How is profit determined in cash basis accounting
Profit is the difference between cash received as income and cash paid as expenses
How can cash basis accounting be problematic
Firms sell and buy goods on credit and some goods are prepaid therefore cash is received or spent at a later date then when incurred
Does cash basis accounting provide misleading financial statements
Yes because cash earnt has not been received and cash spent has not been spent (credit transactions)
Is cash basis accounting approved by the GAAP
No it is not
What is accrual based accounting
Records revenue and expenses when they have been earnt or incurred.
Does using accrual based accounting better reflect profits earnt then cash based accounting
Yes because it better records the performance of an entity during a particular time period
When credit terms offer revenue to be earnt or expenses paid outside current accounting period when does accrual accounting record the expense or revenue
In the current period because it was earnt during that period
How are ongoing expenses like a phone or electricity bill dealt with in accrual based accounting.
Expense is appropriated across the months to determine the true profit and loss in each month
What is a trial balance
A list of accounts and their balances at the end of an accounting period
What is the purpose of a trial balance
To check and make sure that debits equal credits after posting journal entires to ledger
What is the 1st step in a trial balance
List account titles and their debit or credit balance
What is the 2nd step in a trial balance
Total the debit and credit columns
