Chapter Four: Accrual Accounting Concepts 1. What is the difference between the cash basis of accounting and...

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Accounting

Chapter Four: Accrual Accounting Concepts
1. What is the difference between the cash basis of accountingand the accrual basis of accounting?
2. What kinds of companies use the accrual basis ofaccounting?
3. What is the revenue recognition principle?
4. What is the expense recognition principle?
5. Why are adjusting journal entries (adjustments) made?
6. What are unexpired costs? What are expired costs? What causesa cost to become expired?
7. On which financial statement does one find unexpired costs?On which financial statements does one find expired costs?
8. Describe the (1) two categories of and (2) four types ofadjusting journal entries. What is one example of each?
9. What is the specific impact onthe financial statement account categories (assets, liabilities,equity, revenues, and expenses) if the corporate accountant doesnot prepare adjusting journal entries for depreciation andamortization?
10. What happens to the financial statements when corporationsengage in earnings management?
11. What is the process of “closing the books”?
12. What are the differences between temporary (nominal) andpermanent accounts?
13. What is the difference between (1) Revenues and Gains;between (2) Expenses and losses?
14. Which of the trial balances is used to prepare the financialstatements?

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1 The cash basis and accrual basis of accounting are two different methods used to record accounting transactions The key difference between the two methods is in the timing of recognition of transactions Cash basis Revenue is recorded when cash is received from customers and expenses are recorded when cash is paid to suppliers and employees If goods are sold on account revenue would be recognized only once collections are made Therefore the concept of Bad Debt Expense is alien to the cash method If a payment of 2400 is made for an insurance coverage for the next 12 months the entire amount of 2400 would be recognized as a insurance expense in the period the payment is made Therefore the concept of Prepaid Expense is also not there in See Answer

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