Question

A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?

A  

Cash	1000
Accounts Receivable		1,000

B

Accounts Payable	1000
Cash		1,000

C

Cash	1000
Service Revenue		1,000

D

Service Revenue	1000
Cash		1,000

Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?

A) Cash

B) Unearned Revenue

C) Service Revenue

D) Salaries Expense

What is the difference between cash basis accounting and accrual basis accounting?

The revenue recognition principle guides accountants in ________.

A) ensuring only revenues received in cash are recorded

B) determining when to record expenses

C) determining when to record revenues

D) ensuring expenses are deducted from revenues

Answer 1

1. The right entry for the given set of transactions details is given below

A)

Cash	1000
Account receivables		1000

2.Which of the following account would be used in accrual basis but not in cash basis

B) Unearned revenue

3. Following are the difference between cash and accrual basis :-

Basis of difference	Cash basis	Accrual basis
1) Type of transactions recorded	Only cash transaction	Cash and credit transactions
2) Consideration of outstanding, prepaid exp	not considered, only cash payments are the subject concern for calculating surplus or deficit	Considered related to the current period
3) Consideration of advance and accrued income	not considered , only cash receipts are the subject concern for calculation of surplus or deficit	Considered which are only related with current period
4) Participants	Professionals those are receiving fees in cash only.	All business( sole proprietorship, partnership , private or public limited companies)
5) Recognition	Corporate tax calculation and federal corporate tax law does not recognize cash basis of accounting	Corporate tax calculation and federal tax law only recognize accrual basis of accounting

4. The revenue recognition principal guides accountants in

D) Ensuring expenses are deducted from revenues.