In: Accounting
Name three common transactions that are reported differently in modified accrual accounting and accrual accounting.
The following shows how the three common transactions are reported differently in Modified accrual accounting and accrual accounting.
1. Sales on Account transaction:
Accrual basis will record the following journal entry;
Accounts receivable | xxx | |
Sales revenue | xxx |
Modified Accrual accounting will not record the above transaction,since the above transaction affects income statement and cash is not received.
2.Receipt of cash from customer for a sale made on account;
Accrual basis will record the following entry;
Cash | xxx | |
Account receivable | xxx |
Modified Accrual basis of accounting will record the following entry;
Cash | xxx | |
Sales revenue | xxx |
Modified accrual basis will consider short term transactions only on basis of cash received and paid.
3.Receipt of Utility bill, payable within 15 days.
Accrual method will record the following entry on receipt of utility bill;
Utility expense | xxx | |
Utility expense payable | xxx |
The following entry will be recorded upon payment of cash;
Utility expense payable | xxx | |
cash | xxx |
Modified accrual method will only pass one entry which is on payment of cash;
utility expense | xxx | |
cash | xxx |