Question

10. Please characterize the following transactions as impacting either a “cash basis” financial presentation or an “accrual basis” financial presentation. (2 pts)

Tenet Healthcare Corporation (a public company) records $27.2 million in patient billed accounts receivable for the month of

1. October 2010. The billings would be reflected in a(n)_________________presentation in October 2010.

2. Apple Computer, Inc. (a public company) records a $62.1 million liability (amount to be paid in the future) for patent infringement associated with the development of the iPhone, which is expected to be paid in 2012. The liability would be reflected in a(n)_________________presentation in 2011.

Answer 1

Under "Cash basis financial presentation" transaction is recorded on the basis of receipt or payment of transaction whereas under “accrual basis” financial presentation, transaction is recorded on the basis of actual timings of event. Receipt or Payments can be in past or in future.

In both Transactions, "Accrual Basis" Financial Presentation have been followed.

As

i) Tenet Healthcare Corporation (a public company) records $27.2 million in patient billed accounts receivable for the month of October 2010, as receivables are booked instead of actual recovery.Hence, accrual Basis.

ii) Apple Computer, Inc. (a public company) records a $62.1 million liability (amount to be paid in the future) for patent infringement associated with the development of the iPhone, which is expected to be paid in 2012. Here, Recovery will be in future still recorded. Hence, accrual Basis.