AFM 101 Classroom Solutions - Sept 19th

AFM 101 Classroom Solutions - Sept 19th - E3-3 Cash Basis...

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Unformatted text preview: E3-3 Cash Basis Income Statement Revenues: Cash sales Customer deposits Expenses: Inventory purchases Wages paid Profit Accrual Basis Income Statement Revenues: $4,000 Sales to customers 1,000 2,000 600 $2,400 Expenses: Cost of sales Wages expense Utilities expense Profit $10,000 7,000 600 200 $2,200 The cash basis considers only the cash receipts and cash payments regardless of the revenues generated in March and the related expenses. Revenues under the cash basis would include amounts received for sales made in earlier months, and exclude sales for which collection will occur in the future. Similarly, expenses under the cash basis do not take into consideration those expenses that benefited the company in March but will be paid in future months. In this particular case, the cash-basis profit shows a better performance than the accrual-basis profit, but the latter provides a better indication of the operating performance of the company in a given accounting period. E3–11 Statement of Financial Position Income Statement Assets Liabilities Shareholders’ Equity Revenues Expenses Profit a. +53 NE +53 NE NE NE b. +30,563 +30,563 NE NE NE NE c. –34 –34 NE NE NE NE d. +50,710 –33,337 NE +17,373 +50,710 +33,337 +17,373 e. –2,048 NE –2,048 NE NE NE f. +889 –889 NE NE NE NE NE g. –2,920 +1,460 –4,380 NE +4,380 –4,380 h. +353 NE +353 +353 NE +353 i. NE +185 –185 NE +185 –185 Transaction (d) results in an increase in an asset (Trade receivables) and a decrease in another asset (inventory). Transaction (f) results in an increase in an asset (property, plant and equipment) and a decrease in another asset (cash). Therefore, there is no net effect on assets. Transaction (h) results in an increase in two asset accounts, namely cash and interest receivable, for a total of $353. ...
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This note was uploaded on 12/19/2011 for the course AFM 101 taught by Professor Kennedy during the Fall '08 term at Waterloo.

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AFM 101 Classroom Solutions - Sept 19th - E3-3 Cash Basis...

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