Ch3 - E3-17 Cash Basis Accrual Basis Revenues 510,000...

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Unformatted text preview: E3-17 Cash Basis Accrual Basis Revenues 510,000 500,000 Expenses 400,000 420,000 Net Income 110,000 80,000 The accrual basis measures net income better because it takes into account services that have been provided, but have not yet been paid for, and prepaid expenses. The cash basis does not. E3-18 a. $700 million in revenue; according to the revenue principle, you should only record a revenue when service has been provided. b. $540 million; the matching principle c. Income statements report revenues and expenses; Statement of Cash Flows reports cash receipts and cash payments. E3-21 Accounts and Explanation a. Debit Insurance Expense ($700 + $2,100 – 800) $2,000 Prepaid Insurance b. Interest Receivable $2,000 $900 Interest Revenue c. Unearned Service Revenue ($800 - $300) $900 $500 Service Revenue d. Depreciation Expense $500 $6,200 Accumulated Depreciation e. Salary Expense ($9,000 x 3/5) $6,200 $5,400 Salary Payable f. Income Tax Expense ($20,000 x 40%) Credit $5,400 $8,000 1 Income Tax Payable Understated By: Interest Revenue Service Revenue Total: $8,000 $900 $500 $1,400 Overstated By: Insurance Expense $2,000 Deprecation Expense $6,200 Salary Expense $5,400 Income Tax Expense $8,000 Total: $21,600 NET INCOME OVERSTATED BY $20,200 E3-29 Closing Entries ACCOUNT TITLES AND EXPLANATION Service Revenue Other revenue Retained Earnings Retained Earnings Cost of services sold Selling, general, and administrative expense Depreciation Expense Income tax Expense Retained Earnings Dividends DEBIT 23,600 600 CREDIT 24,200 23,000 11,600 6,900 4,100 400 400 400 Net Income = 1,200 2 ...
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This note was uploaded on 08/30/2011 for the course ACG 2021 taught by Professor Hornik during the Fall '08 term at University of Central Florida.

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Ch3 - E3-17 Cash Basis Accrual Basis Revenues 510,000...

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