Accrual Accounting vs. Cash Basis Accounting

Accrual Accounting is required by GAAP and is the main focus of this course. Cash Basis Accounting focuses only on cash transactions.

Concept: Accrual Accounting

7m

Concept: Cash Basis Accounting

5m

Accrual Accounting vs. Cash Basis Accounting Additional Practice Problems

On December 1, 2011, a landlord collected $5,000 cash from a tenant for December 2011's rent but the tenant's rent for December is $8,000. Which of the following is true with respect to the landlord's financial statements?

A. $8,000 would be reported on the statement of cash flows.

B. $8,000 would appear on the balance sheet as rent receivable.

C. $8,000 would appear on the income statement as rent revenue earned.

D. $5,000 would appear on the balance sheet as prepaid rent.

Watch Solution

Pacman Company buys a $12,000 van on credit. The transaction will affect the

a. income statement only.

b. balance sheet only.

c. income statement and owner's equity statement only.

d. income statement, owner's equity statement, and balance sheet.

Watch Solution

BBQ Grill received a bill of $400 from the Yumm Advertising Agency. The owner, Wayne Chang, is postponing payment of the bill until a later date. The effect on specific items in the basic accounting equation is

a. a decrease in Cash and an increase in Accounts Payable.

b. a decrease in Cash and an increase in W. Chang, Capital.

c. an increase in Accounts Payable and a decrease in W. Chang, Capital.

d. a decrease in Accounts Payable and an increase in W. Chang, Capital.

Watch Solution

Revenue for June was $99,000, of which $92,000 was collected in cash. Expenses for June were $87,000, of which $84,000 were paid in cash. Dividends declared and paid during June were $16,000. Net income or net loss for June, measured by the accrual basis, was:

a. $8,000 net loss.

b. $4,000 net loss.

c. $8,000 net income.

d. $12,000 net income.

Watch Solution