Chapter 4 Cash vs Accrual - Cash Basis of Accounting...

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Chapter 4 Page 164 Cash Basis of Accounting Accrual Basis of Accounting Dec 1, Rent Due… DR CR DR CR No Entry Rent Expense 500 Accounts Payable 500 Jan. 5, Rent Paid… Rent Expense 500 Accounts Payable 500 Cash 500 Cash 500 Employee works 5 days. Earns $120 a day… DR CR DR CR No Entry Salary Expense 600 Salaries Payable 600 Jan 1, Payday… Salaries Expense 600 Salaries Payable 600 Cash 600 Cash 600 Dec 31, Earn $800 in Fee Revenue… DR CR DR CR No Entry Accounts Receivable 800 Fee Income 800 January 5, Income received… Cash 800 Cash 800 Fee Income 800 Accounts Receivable 800 Notice that the Accrual basis used Receivable and Payable accounts when income earned or expenses incurred. While the Cash basis goes directly to the Income and Expenses accounts when income received or expenses paid. 1
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Now let’s assume we have a perfect world, and we pay our bills immediately when due, and receive our income when earned…
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Unformatted text preview: Cash Basis of Accounting Accrual Basis of Accounting Dec 1, Rent Due DR CR DR CR No Entry Rent Expense 500 Accounts Payable 500 Jan. 5, Rent Paid Rent Expense 500 Accounts Payable 500 Cash 500 Cash 500 Employee works 5 days. Earns $120 a day DR CR DR CR No Entry Salary Expense 600 Salaries Payable 600 Jan 1, Payday Salaries Expense 600 Salaries Payable 600 Cash 600 Cash 600 Dec 31, Earn $800 in Fee Revenue DR CR DR CR No Entry Accounts Receivable 800 Fee Income 800 January 5, Income received Cash 800 Cash 800 Fee Income 800 Accounts Receivable 800 Result No difference in final results. Accrual just eliminates the timing differences to conform to the Matching Principal of recognizing income when earned and expenses when incurred. 2...
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This note was uploaded on 04/27/2010 for the course ACCOUNTING 201 taught by Professor D.kanarella during the Spring '10 term at University of Toronto- Toronto.

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Chapter 4 Cash vs Accrual - Cash Basis of Accounting...

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