ACCRUALS - Accrual Accounting Methods of Accounting Cash...

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Accrual Accounting
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Methods of Accounting • Cash – Record revenue when cash is received – Record expense when cash is spent • Accrual – Expenses spread over the time of benefit (e.g. fiscal year) – Revenues matched to expenses
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Cash Entries • Receive paycheck: – Debit Cash (increases Cash) – Credit Revenue (increases Revenue which increases Net Assets) • Pay electric/gas bill: – Debit Utilities (increases expense which decreases Net Assets) – Credit Cash (decreases Cash)
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Accrual Accounting requires the use of more Balance Sheet Account Codes than just Cash and Net Assets
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Accrual Entries #1 • Pay Car Insurance in January: – Debit Prepaid Expense (increases Asset) – Credit Cash (decreases Cash) • Each month, beginning in January: – Debit Insurance Expense 1/12 (increases expense which decreases Net Assets) – Credit Prepaid Expense 1/12 (decreases Asset)
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Accrual Entry #2 • Each month, beginning in January: – Debit Insurance Expense 1/12 (increases expense which decreases Net Assets) – Credit Insurance Payable 1/12 (increases Liability) • Pay bill in December: – Debit Insurance Payable full amount (decreases Liability) – Credit Cash (decreases Cash)
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Budgets • Make sure you have enough money to pay all the bills (don’t have a deficit) • A “reality” check to see how you’re doing throughout the year
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ACCRUALS - Accrual Accounting Methods of Accounting Cash...

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