1. First, List the steps in the Accounting Cycle;Can Closing journal Entries be prepared before the financial statements? Why or why not?Your answer should be complete sentences and accurate.
2. Define Accrual Basis accounting.Give one example of a simple transaction and how it would be recorded under Accrual-Basis accounting versus Cash-Basis accounting.
3. For example:
4. Transaction: Purchase supplies for cash, $500:
5. Answer:
6. Accrual- Basis would record the transaction as a debit to asset. Expenses are recorded when the asset is used, therefore resulting in an adjustment to assets at the end of the period:
7. Supplies500Cash500Cash-Basis would record the transaction as a debit to an expense account which means the entire $500 would be recognized as an expenseand reduce profits, even though the supplies were not used in the current month. This violates the "Matching concept under GAAP:
8. Supplies Expense500Cash500