ACC 561 Week 2 Make Up Assignment Assignment Content Top of Form Purpose of Assignment ...

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ACC 561 Week 2 Make Up Assignment

Assignment Content

Top of Form

Purpose of Assignment

This week's activity illustrates the role a company's accounting method plays in financial statement reporting. In this assignment, students evaluate the events occurring in a business setting and determine how to properly analyze those events to identify the impact on both cash and accrual accounting methods.

The instructor just asked us to write a word document explaining the attached excel sheet Bottom of Form

Business Policy

Event

Cash Accounting

Accrual Accounting (GAAP)

180-day financing for customers

Goods or services delivered to customer

n/a

Accounts Receivable

n/a

Service Fees

Customer pays cash after 180 days

Cash

Services Fees

Accounts Receivable

Payment to equipment suppliers upon delivery of goods

Received equipment

Equipment/Equipment Expense

Equipment

Cash

Adjusting entry each accounting period

Depreciation Expense or n/a

Depreciation Expense (Increase)

Accumulated Depreciation or n/a

Accumulated Depreciation (Increase)

Prepayment for 2 years of insurance coverage

Paid cash for insurance coverage

Prepaid Ins or Insurance Expense

Pre Paid Insurance

Cash

Adjusting entry each accounting period

Insurance Expense or n/a

Insurance Expense

Prepaid Insurance or n/a

Pre Paid Insurance

Salary and Wages paid monthly

One month’s salaries owed at year-end

n/a

Salary Expense

n/a

Salaries Payable

Payroll checks delivered at beginning of year

Salary Expense

Salary Payable

Cash

Account title

Anamika · Accepted Answer

To show the correct profit of a business in a given year we have to choose an Accounting method. After determining profits, income tax is imposed, so it directly impact Income Tax. It also impact in obtaining loans for business or raising funds for the business. Once any Accounting method is being chosen, it has to be followed for long period.
CASH METHOD
Cash accounting method is the simple method to use. Under this method the transactions are recorded only on cash basis. The benefit of this method is we can easily know the Profit or Loss of the business only by looking checkbook or sales receipt of the year. Cash in hand can be known any time. The downside of the method is that it may not accurately reflect earned or spent amount. 
ACCRUAL METHOD 
In the accrual method, the income and expenses are recorded when they were earned or incurred regardless whether the transaction includes cash or not. Business profits or losses can be known efficiently using this method. If any large payments are done it is divided over the relevant period. In this method extra work is required to record the transactions. Under this method cash in hand cannot be known anytime. We need to prepare cash flow statement separately to know the correct position of the cash.
1. Goods or service delivered to customer. Business policy is customer will pay after 180 days.
	Event
	Cash accounting
	Accrual accounting
	Goods of services delivered to the customer
	N/A
N/A
	Accounts receivable
Service fees
 
                                          
Explanation: In cash system transactions are recorded only when cash is involved .If the goods or services are sold in cash then we would pass the entry on the date on which cash will be received. But in Accrual system we would pass the entry when the event takes place irrespective of cash received or paid.

ACC 561 Week 2 Make Up Assignment Assignment Content Top of Form Purpose of Assignment This week's activity illustrates the role a company's accounting method plays in financial statement reporting....

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