week 3 indv - 3 Define accrual accounting and contrast it...

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3. Define accrual accounting and contrast it with cash basis accounting. Accrual accounting realizes accounting changes as the revenue and expenses during the period in which it occurs. You will see the cash method used by small businesses because cash in hand is king and they cannot afford to count it any other way. So cash base is simply that you count it when it is actually received and the same goes for any expenses, they are counted when taken. 4. What four conditions must normally be met for revenue to be recognized under accrual basis accounting? 1. Earnings process is complete 2. Transaction of exchange is noted 3. Revenue is recognized 4. Process is completed Mini Exercise Ans. Cash Basis Income Statement Revenues: Cash sales $6,000 Customer deposits 1,000 Less: Expenses: Inventory purchases 1,000 Wages paid 600 Net Income $5,400 Accrual Basis Income Statement Revenues: Sales to customers $10,000 Less: Expenses: Cost of sales 7,000 Wages expense 600 Utilities expense 200 Net Income $2,200 O’shea statement Liabilities 18,000
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