Purpose of Assignment This week's activity illustrates the role a company's accounting method plays in financial statement reporting In this assignment, students evaluate the events occurring in a business setting and determine how to properly analyze those events to identify the impact on both cash and accrual accounting methods Scenario Advisors LLC, a consulting firm, has just completed its first year of operations with good net income but a low bank (cash) balance Advisors LLC, offered 180 day financing meaning its largest customers do not pay for nearly 6 months Because Advisors LLC, is a new company, its Property Plant Equipment (PP E) suppliers insist on being paid cash on delivery The equipment is depreciated over more than on year Advisors LLC had to pre pay in advance for three months of insurance at year end As the senior accountant, the Chief Financial Officer has asked you to prepare a memo to be sent to management notifying them of the low bank balance Support Accounting Tools for Business Decision Making Paul D Kimmel Jerry J Weygandt Donald E Kieso Generally Accepted Accounting Principles (GAAP), U S Securities and Exchange Commission (SEC) Tutorial help on Excel and Word functions can be found on the Microsoft Office website There are also additional tutorials via the web offering support for Office products Required Explain cash versus accrual accounting in general terms with support from the text for each of the three transactions above Your answer should explain How is revenue different than cash inflow How is depreciation different than the purchase of equipment How are prepaid items recorded on the income statement

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Purpose of Assignment This week's activity illustrates the role a company's accounting method plays in financial statement reporting. In this assignment, students evaluate the events

Purpose of Assignment

This week's activity illustrates the role a company's accounting method plays in financial statement reporting. In this assignment, students evaluate the events occurring in a business setting and determine how to properly analyze those events to identify the impact on both cash and accrual accounting methods.

Scenario

Advisors LLC, a consulting firm, has just completed its first year of operations with good net income but a low bank (cash) balance.

Advisors LLC, offered 180-day financing - meaning its largest customers do not pay for nearly 6 months.
Because Advisors LLC, is a new company, its Property Plant & Equipment (PP&E) suppliers insist on being paid cash on delivery. The equipment is depreciated over more than on year.
Advisors LLC had to pre-pay in advance for three months of insurance at year end.

As the senior accountant, the Chief Financial Officer has asked you to prepare a memo to be sent to management notifying

them of the low bank balance.

Support

Accounting: Tools for Business Decision Making-Paul D. Kimmel; Jerry J. Weygandt; Donald E. Kieso
Generally Accepted Accounting Principles (GAAP), U.S. Securities and Exchange Commission (SEC)
Tutorial help on Excel and Word functions can be found on the Microsoft Office website. There are also additional tutorials via the web offering support for Office products.

Required

Explain cash versus accrual accounting in general terms with support from the text for each of the three transactions above. Your answer should explain:
How is revenue different than cash inflow?
How is depreciation different than the purchase of equipment?
How are prepaid items recorded on the income statement?