Question

In: Accounting

Name three common transactions that are reported differently in modified accrual accounting and accrual accounting.

Expert Solution

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

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