Accrual Accounting-9-22-2025

Accrual accounting records revenues and expenses when they are earned or incurred, regardless of when cash is exchanged.

Accrual accounting only records transactions when cash is received or paid.

Cash-basis accounting recognizes revenue when goods are shipped.

Cash-basis accounting is required by all publicly traded companies.

Sales on account

Paying off loans

Depreciation expense

Purchases of inventory on account

It requires companies to report accounting information at regular intervals.

It only applies to companies using cash-basis accounting.

It states that the fiscal year must always end on December 31.

It prohibits the preparation of interim financial statements.

When the business receives cash from the customer

When the business delivers goods or performs a service for the customer

When the invoice is sent to the customer

When the business incurs an expense

When cash is paid for the expense

When the related revenue is earned

At the end of the accounting period

When the expense is approved by management

Identify all expenses incurred during the period

Recognize expenses in the same period as related revenues are earned

Record expenses only when cash is paid

Subtract expenses from revenues to compute net income or net loss

Cash

Accounts payable

Prepaid rent

Common stock

Because they are paid in advance and provide future benefits

Because they are always refundable

Because they are liabilities

Because they are expenses already incurred

Debit Rent Expense $1,000; Credit Prepaid Rent $1,000

Debit Prepaid Rent $1,000; Credit Rent Expense $1,000

Debit Cash $1,000; Credit Rent Expense $1,000

Debit Rent Expense $3,000; Credit Prepaid Rent $3,000

Debit Supplies $700; Credit Cash $700

Debit Cash $700; Credit Supplies $700

Debit Supplies Expense $700; Credit Cash $700

Debit Cash $700; Credit Supplies Expense $700

Debit Equipment $24,000; Credit Accounts Payable $24,000

Debit Accounts Payable $24,000; Credit Equipment $24,000

Debit Equipment $24,000; Credit Cash $24,000

Debit Cash $24,000; Credit Equipment $24,000

Depreciation Expense—Equipment $400 (debit), Accumulated Depreciation—Equipment $400 (credit)

Equipment $400 (debit), Accounts Payable $400 (credit)

Accumulated Depreciation—Equipment $24,000 (debit), Equipment $24,000 (credit)

Depreciation Expense—Equipment $24,000 (debit), Equipment $24,000 (credit)

$23,600

$24,000

$18,000

$41,600