3A-W'08-HW E4-4 hints

3A-W'08-HW E4-4 hints - receivable of $3,400 because it was...

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I have had several questions on homework E4-4, likely because we really haven’t covered enough of it in class and it does tend to be confusing. All the accounts shown relate to operations and enter into the computation of net income. To go from the income shown on a cash basis to arrive at income on an accrual basis, add increases in assets and deduct decreases; for liabilities, deduct increases and add decreases. More specifically, for accounts that relate operations (all those in the E4-4--would not include PPE, debt, etc.): For assets, deduct the beginning balance and add the beginning balance. For example (using the numbers in the text—yours will be different because the problem on WileyPLUS is algorithmic), deduct beginning balance in accounts receivable of $2,300 because it was included in current cash income but was included in accrual income for the last period, and add the ending accounts
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Unformatted text preview: receivable of $3,400 because it was not included in cash income but does represent accrual income for the current period. Thus, the net increase in accounts receivable of $1,100 would be added to cash income to arrive at accrual income. For liabilities, do just the opposite. Add the beginning balance and subtract the ending balance. For example, add the beginning balance in unpaid wages of $2,400 because they were paid in the current period and reduced cash earnings, but on the accrual basis they were actually an expense of the prior period. Deduct the ending balance in unpaid wages of $1,500 because they were not paid this period but were an expense of the current period. Thus, the net decrease of $900 in unpaid wages would be added to cash income to arrive at accrual income. Using the numbers in the text for E4-4, accrual basis income would b $35,980....
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This note was uploaded on 03/05/2009 for the course ECON 3A taught by Professor Loster during the Fall '07 term at UCSB.

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