Question

w Account Recievable. money that is ourd to company by Costomer. Haskins and Jones, Attorneys-at-Law, maintain its books on a cash basis. During 2013, the company collected $545,000 in fees from its clients and paid out $412,000 in expenses. You are able to determine the following information about accounts receivable, prepaid expenses, unearned fee revenue, and accrued liabilities: January 1, 2013 December 31, 2013 Accounts receivable $62.000 $55,000 & Customer Prepaid insurance 4,500 lan 6,000 Prepaid rent nan sunni CO 9.200 000 8.200 Unearned fee revenue 9,200 (11.000 U Accrued liabilities VEI for various expenses) 12,200 prileva 15,600 ago Calculate revenue and expense that will be reported on an accrual basis. Devas OWN CBR GOS CBE 412000 545,000 62.00 - $5.00022 6.000 -4 sto AR-ABR CBR OU (7000) PP.Ins- ABE<CBE (1500) 1 Def. Rev.- ABR CBR (1800) PP.Rent- ABE>CBE 1000 Liabilities - ABE>CBE 3400 $45.000 - 800 412,000+ 3400 41000 - ABR 536,200 ABE 414900 Accrual Basis Income = 121,300 = $36,200 - 414900 15, I1.000-9200 calon M The employees of Xitrex, Inc., are paid each Friday. The company's fiscal ** year-end is June 30, which falls on a Wednesday for the current year. Wages are earned evenly throughout the five-day workweek, and $10,000 will be paid on Friday, July 2. Purvaver 10,000/5=2,000 per day, $2000/day, Sal. Pay = 6000 at year-end (N 0000 vel 10 6/30 Dr. Sal. Exp. vegins 6000

It's more of an explanation. I am wondering how do you determine ABR<CBR? Accrual basis revenue < cash basis revenue? Can you explain how did the calculation work? Thank you.

Answer 1

Note: Difference between opening and closing balance is considered In case of revenue items which increase cash will be deducted to arrive at accrual based revenue because accrual does not consider cash inflows Amount Explanation Cash based revenue $545,000 Less: Decrease in Accounts receivable -$7,000 Decrease in AR will increase cash hence deducted Less: Increase in unearned revenue -$1,800 Increase in Unearned revenue will increase cash hence deducted Accrual based revenue $536,200 In case of expenses items which increase cash will be deducted and items which reduce cash will be added because accrual does not consider cash inflows or outflows Amount Explanation Cash based expense $412,000 Less: Increase in Prepaid insurance -$1,500 Increase in Prepaid insurance will increase cash outflow hence deducted Add: Decrease in prepaid rent $1,000 Decrease in prepaid rent will reduce cash outflow hence added Add: Increase in accrued liabilities $3,400 Increase in accrued liabilities will reduce cash outflow hence added Accrual based expense $414,900 Accrual based revenue Accrual based expense Accrual basis income $536,200 $414,900 $121,300