Accrual Basis Balance Sheet
Practice as You Learn
Introduction to Accounting
Accrual Basis Balance Sheet
Practice as You Learn
The income statement reports:
1) Goods or services provided to a customer during the period.
Report revenue in the period the goods or services are provided to the customer.
2) Services provided to the company during the period.
Report expense in the period the service is provided to the company.
3) Assets used (up) to provide the goods or services to customers during the period.
Report an expense in the period the asset is used.
When cash is paid or received DOES NOT MATTER to the income statement!
Report revenue when:
1) The goods or services are provided and performance obligation is met
2) Expect to collect the cash entitled to
Report expenses when:
1) The service is provided to the company, or
2) An asset is used (up) to provide goods or services
There Are Always 2 Things when there is a revenue or an expense
2 Things: 1st the revenue and then decide which balance sheet account changes; cash, accounts receivable, unearned revenue
2 Things: 1st the expense and then, decide which balance sheet account changes; less asset (prepaid, supplies, inventory) or more liability (payable or accrued)
The balance sheet reports if cash occurs in a different period.
Prepaid or unearned revenue indicates cash was exchanged in a previous period.
Accounts receivable or xxxxxx payable or accrued liability indicates the cash will be exchanged in a future period.
Use the following information given on December 31st for ABC, Company to prepare a balance sheet.
| Accounts Receivable | 22,000 | Goodwill | 16,000 | |
| Building | 142,000 | Accrued Expenses | 4,000 | |
| Cash | 38,000 | Short-term Notes Payable | 25,000 | |
| Salary Expense | 22,000 | Cost of Goods Sold | 52,000 | |
| Accounts Payable | 37,000 | Long-term Investments | 35,000 | |
| Equipment | 86,000 | Common Stock | 1,000 | |
| Interest Expense | 4,000 | Selling Expenses | 44,000 | |
| Retained Earnings | ?? | Interest Income | 2,000 | |
| Prepaid Expenses | 2,000 | Inventory | 62,000 | |
| Sales | 123,000 | Dividends paid | 25,000 | |
| Accumulated Deprec. | 32,000 | Rent Income | 1,200 |
Answer
| Balance Sheet ABC Company As of December 31st, XXXX |
||||
| Assets | Liabilities: | |||
| Cash | 38,000 | Accounts Payable | 37,000 | |
| Accounts Receivable | 22,000 | Accrued Expenses | 4,000 | |
| Inventory | 62,000 | Short Term Notes Pay | 25,000 | |
| Prepaid Expenses | 2,000 | Total Current Liabilities | 66,000 | |
| Total Current Assets | 124,000 | |||
| Long term Investments | 35,000 | Owner’s Equity: | ||
| Property, Plant, Equipment: | Common Stock | 1,000 | ||
| Building | 142,000 | Retained Earnings | 304,000 | |
| Equipment | 86,000 | Total Owner’s Equity | 305,000 | |
| – Accumulated Deprec | (32,000) | |||
| Net P/P/E | 196,000 | |||
| Goodwill | 16,000 | |||
| ______ | _______ | |||
| Total Assets | 371,000 | Total Liabilities & O.E. | 371,000 | |
Revenues and expenses are reported on the income statement and are not reported on the balance sheet.
Dividends paid are not reported separately, they are included in retained earnings.
First, total liabilities plus total owner’s equity is equal to total assets.
Next, total liabilities and owner’s equity less total liabilities equals total owners’ equity. Then, total owner’s equity less common stock is retained earnings
For each of the following determine when the cash was paid. The choices are either Before, Same Period, or After the revenue or expense is reported on the income statement.
a. Deferred Revenue
b. Accounts Receivable
c. Wages Payable
d. Accrued Expense
e. Interest Receivable
f. Accrued Liability
g. Expense without a payable or prepaid
h. Prepaid Insurance
i. Revenue without a receivable or unearned
Answer
| a. Deferred Revenue | Before the revenue is reported |
| b. Accounts Receivable | After the revenue is reported |
| c. Wages Payable | After the expense is reported |
| d. Accrued Expense | After the expense is reported |
| e. Interest Receivable | After the revenue is reported |
| f. Accrued Liability | After the expense is reported |
| g. Expense without a payable or prepaid | Same period |
| h. Prepaid Insurance | Before the expense is reported |
| i. Revenue without a receivable or unearned | Same period |
State the account name used on the balance sheet that represents the difference in what is reported on the income statement and cash exchanged during the period.
a. A service was provided to the customer and the customer will pay in the next period
b. A service was provided to the company and the company will pay in the next period
c. The customer paid the company before the goods were provided.
d. Goods were provided to the customer that will be paid for in 30 days.
e. The company paid for the service before the service was provided to the company
Answer
b. Accrued Liabilities or Accrued Expenses
c. Unearned Revenue or Deferred Revenue
d. Accounts Payable (for inventory)
e. Prepaid Expense