During 2014, Jolleff Network, Inc., which designs network servers, earned revenues of $860 million. Expenses totaled $610 million. Jolleff collected all but $25 million of the revenues and paid $630 million on its expenses. Jolleff’s top managers are evaluating 2014, and they ask you the following questions:
a. Under accrual accounting, what amount of revenue should Jolleff Network report for 2014? How does the revenue principle help to answer these questions?
b. Under accrual accounting, what amount of total expense should Jolleff report for 2014? Which accounting principle helps to answer this question?
c. Rework parts a and b using the cash basis. Explain how the accrual basis differs from the cash basis.
d. Which financial statement reports revenues and expenses? Which statement reports cash receipts and cash payments?