During 2010 Carlton Network, Inc., which designs network servers, earned revenues of $740 million. Expenses totaled $560 million. Carlton collected all but $24 million of the revenues and paid $580 million on its expenses. Carlton’s top managers are evaluating 2010, and they ask you the following questions:
a. Under accrual accounting, what amount of revenue should Carlton Network report for 2010? Is it the revenue of $740 million earned or is it the amount of cash actually collected? How does the revenue principle help to answer these questions?
b. Under accrual accounting, what amount of total expense should Carlton report for 2010––$560 million or $580 million? Which accounting principle helps to answer this question?
c. Which financial statement reports revenues and expenses? Which statement reports cash receipts and cash payments?