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Flashcards in Accrual Accounting Deck (17):
1

What happens in a

Modified Cash Basis of Accounting?

Certain accruals and/or deferrals are recorded for financial-statement purposes.

 

2

What are the most common modifications under the Modified Cash Basis?

  1. Capitalization and Amortization of long-lived assets
  2. Accrual of income taxes 
    1. Recognition of income tax expense and related liability.

3

What is a current asset's

Operating Cycle?

A firm's current operating cycle

OR

One year

Whichever is longer...

4

How do you convert

Cash Basis -> Accrual Basis?

Cash Basis Amount

- Change in Liabilities

+ Change in Other Assets

= Accrual Basis Amount

Cash has basis has no Equity in the calculation

5

How do you convert

Accrual Basis -> Cash Basis?

Accrual Amount

+ Change in Liabilities

+ Change in Equity

- Change in Other Assets

Cash Basis Amount

6

What is the prerequisite for converting

Cash-basis sales to Accrual-basis sales?

Sales must be adjusted for the net change 

in Accounts Receivable.

Sales

+ or -

Change in Accounts Receivable

Accrual Basis Sales

7

What does the 

General Purpose External Financial Report

contain?

  1. Income Statemet
  2. Statement of Comprehensive Income
  3. Balance Sheet
  4. Statement of Changes in Owner's Equity
  5. Statement of Cash Flows
  6. Footnote Disclosures and Supplementary Schedules
  7. Auditor's Opinion

8

What is another name for the 

General Purpose External Financial Report?

The Annual Report

The report is a "general purpose" report because it is designed to meet the information needs of a broad class of users (mainly investors and creditors), rather than a predefined specific use report.

9

What is GAAP's composition?

  1. Principles
  2. Methods
  3. Procedures

10

List the Non-GAAP matters

not included in the codification

  1. Other Comprehensive Basis of Accounting;
  2. Cash Basis;
  3. Income Tax Basis;
  4. Regulatory Accounting Principles.

11

In analyzing a company's financial statements, which financial statement would a potential investor use primarily to assess the company's liquidity and financial flexibility?

The Balance Sheet

 It is a statement of the wealth position of the firm and allows an assessment of the relative risk of the enterprise.

12

How do you reconcile 

Operating Expense to Cash?

Operating Expense Amount

+ Increase or - Decrease in Prepaid Expenses

- Increase in accrued liabilities

Operating Expense for current year

13

What is the difference between

Cash Basis and Accrual Basis

Net Income?

Cash Basis Net Income reflects expenses paid

Accrual Basis Net Income reflects expenses recognized.

14

How do you calculate revenue under Cash Basis?

Gross Cash Sales

- (Returns / Allowances)

+ Gross Credit Sales

- (Discounts)

+ Cash Collections

Cash Basis Revenue

15

How does cash collections affect 

Cash Basis Accounting?

It is recognized as revenue

16

How do you determine

insurance premiums paid?

Beginning Balance

+ Premiums Paid

- Expense Charges

= Ending Balance

The trick is to do a "plug" calculation to determine premiums paid if you have data for all the other components.

17

How do you reconcile 

Cash Basis Sales to Accrual Basis Sales?

Ending Sales Balance

+ or - increase or decrease in AR

Sales in Income Statement