Brandywine Homecare

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Brandywine Homecare, a not-for-profit business, had revenues of $12 million in 2007. Expenses other than depreciation totaled 75 percent of revenues, and depreciation expense was $1.5 million. All revenues were collected in cash during the year and all expenses other than depreciation were paid in cash. 1. Construct Brandywine’s 2007 income statement. An income statement, also known as a profit and loss statement shows how much money a company has spent over a period of time. It also shows the costs and expenses that are associated with earning that revenue. It is an important measure of the company’s profitability. The simple building blocks of a net income formula are revenues minus expenses equal net income. Brandywine…show more content…
The two approaches have many aspects in common but there are two key differences that distinguish one from the other. The difference in cash accounting and accrual accounting is the way debits and credits are applied in bookkeeping. Cash based accounting recognizes income at the time it is actually received. This means that invoiced income is not counted as an asset until payment for the invoice is received. This approach is also used for debits and any expenses incurred are not posted until they are paid. Small businesses often time use the cash accounting because it is simple and easy. It is important to recognize that this type of accounting can complicate matters when the business is up for sale or a merger is offered. The type of accounting method used in any business should not be assumed. In accrual accounting, an expense is recognized when the business is obligated to pay it. As goods or services are invoiced, the invoices are posted and counted as assets. Expenses are also posted at the time they are incurred. Accrual accounting is used at most mid-level and large businesses and provides a more accurate picture of the company’s current condition, it is however more expensive to implement. This type of accounting is required by GAAP. Although this type of accounting is more complex, it allows one to track receivables and payables, and match revenues to expenses, which gives more meaning to financial reports. There are also two

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