ACC 201 WORKSHOP TWO CASH BASIS AND ADJUSTING ENTRIES HANDOUT FOR 2.3 DROPBOX
Download Cash Basis and Adjusting Entries Handout for 2.3 Dropbox Review the questions below. As you watch the video Cash Basis versus Accrual Basis of Accounting, take notes and answer the following questions for Dropbox submission: Question 1. Under cash-basis accounting, when is revenue recorded? When is it recorded under accrualbasis accounting? 2. Under accrual accounting, when is revenue considered earned? 3. If a membership represents an advance payment for services provided, when is it recognized as revenue under the accrual basis, and what is it called? 4. Why is insurance expense spread over multiple periods even though the policy coverage is paid in advance? 5.
At the end of the month for Silver’s Gym, what entries need to be made under the cash basis of accounting for wages that have not yet been paid? What entries need to be made under the accrual method?
6.
Why is it important to match expenses and revenues to reflect the performance of a business
over a particular time period? 7.
When might the use of cash basis accounting overstate the actual profits earned by Silver’s gym? When might it understate the actual profits earned?
8. Which basis of accounting is in accordance with GAAP for large companies?
Review the questions below. As you watch the video Road Map to Adjusting Entries, take notes and answer the following questions for Dropbox submission: Question 1. When dealing with adjusting entries, what is the first question that must be answered? 2. What is the difference between an accrual and a deferral? 3. If legal services are paid in advance at a law firm, what type of account would be increased? 4.
Why should prepaid fees be considered a liability?
5.
What type of account should show services provided for which payment has not yet been received? 6. At the end of the accounting period, if wages have been earned but not yet paid, which two accounts are impacted and with what type of entries? 7.
If you were the person in charge of doing the accounts for a law firm, how would you explain to the partners why the firm should use accrual rather than cash-basis accounting in preparing its financial statements?