Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

(Based on LO 1,2,3), C BizCon, a consulting firm, has just completed its first year of operations. The company's sales growth was explosive. To encourage

(Based on LO 1,2,3), CBizCon, a consulting firm, has just completed its first year of operations. The company's sales growth was explosive. To encourage clients to hire its services, BizCon offered 180-day financingmeaning its largest customers do not pay for nearly 6 months. Because BizCon is a new company, its equipment suppliers insist on being paid cash on delivery. Also, it had to pay up front for 2 years ofinsurance. At the end of the year, BizCon owed employees for one full month of salaries, but due to a cash shortfall, it promised to pay them the first week of next year.

Instructions

  1. Explain how cash and accrual accounting would differ for each of the events listed above and describe the proper accrual accounting.
  2. Assume that at the end of the year, BizCon reported a favourable net income, yet the company's management is concerned because the company is very short of cash. Explain how BizCon could have positive net income and yet run out of cash.

------------------------------------------------------------------------------------------------

LO 1 Explain the accrual basis of accounting and the reasons for adjustments.

  • Revenue recognition principle
  • Expense recognition principle
  • Accrual vs. cash basis
  • Need for adjustments
  • Types of adjustments

LO 2 Prepare adjustments for deferrals.

  • Prepaid expenses
  • Unearned revenues

LO 3 Prepare adjustments for accruals.

  • Accrued revenues
  • Accrued expenses
  • Summary of basic relationships

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image_2

Step: 3

blur-text-image_3

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Financial Accounting

Authors: Anne Marie Ward, Andrew Thomas

9th Edition

1526803003, 978-1526803009

More Books

Students also viewed these Accounting questions

Question

1. Why do we trust one type of information more than another?

Answered: 1 week ago