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ACC305 Wk 1 DQ2 Cash vs. Accrual & Financial Disclosures


ACC305 Wk 1 DQ2 Cash vs. Accrual & Financial Disclosures fin571

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ACC305 Wk 1 DQ2 Cash vs. Accrual & Financial Disclosures
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This 0 page Study Guide was uploaded by an elite notetaker on Monday November 9, 2015. The Study Guide belongs to fin571 at Kaplan University taught by in Fall 2015. Since its upload, it has received 23 views.


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Date Created: 11/09/15
Judgment Case 21 page 109 You have recently been hired by Davis amp Company a small public accounting rm One of the firm39s partners Alice Davis has asked you to deal with a disgruntled client Mr Sean Pitt owner of the city39s largest hardware store Mr Pitt is applying to a local bank for a substantial loan to remodel his store The bank requires accrual based nancial statements but Mr Pitt has always kept the company39s records on a cash basis He does not see the purpose of accrual based statements His most recent outburst went something like this quotAfter all I collect cash from customers pay my bills in cash and lam going to pay the bank loan with cash And I already show my building and equipment as assets and depreciate them I just don39t understand the problemquot Required 1 Explain the difference between a cash basis and an accrual basis measure of performance 2 Why in most cases does accrual basis net income provide a better measure of performance than net operating cash ow 3 Explain the purpose of adjusting entries as they relate to the difference between cash and accrual accounting Judgment Case 21 Requirement 1 Cash basis accounting produces a measure of performance called net operating cash ow This measure is the difference between cash receipts and cash disbursements during a reporting period from transactions related to providing goods and services to customers On the other hand the accrual accounting model measures an entity s accomplishments revenues and resource sacrifices expenses during the period regardless of when cash is received or paid Requirement 2 In most cases the accrual accounting model provides a better measure of performance because it attempts to measure the accomplishments and sacrifices that occurred during the year which may not correspond to cash in ows and out ows Requirement 3 Adjusting entries for the most part are conversions from cash to accrual Prepayments and accruals occur when cash ow precedes or follows expense or revenue recognition Judgment Case 36 page 162 You recently joined the auditing staff of Best Best and Krug CPAs You have been assigned to the audit of Clearview Inc and have been asked by the audit senior to examine the balance sheet prepared by Clearview39s accountant Required Identify the items in the statement that most likely would require further disclosure either on the face of the statement or in a note Further identify those items that would require disclosure in the signi cant accounting policies note Judgment Case 36 Accounts receivable net disclosure on the face of the statement of the allowance for uncollectible accounts if material Inventories disclosure in Accounting Policies note of the cost method used Also for a manufacturer note disclosure of the breakout of inventory into raw materials work in process and finished goods Investments information about the types of investments and the accounting method used to value the investments Property plant and equipment original cost by major category should be disclosed along with the accumulated depreciation either on the face of the statement or in a note Also the method used to compute depreciation should be disclosed in the Accounting Policies disclosure note Long term liabilities disclosure in a note of the various debt instruments comprising long term liabilities to include information such as payment terms interest rates and collateral pledged as security for the debt Common stock disclosure on the face of the statement of par value if any and the number of shares authorized issued and outstanding


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