High School Finance Teacher

1331 Words6 Pages
Accrual vs. Cash Basis Accounting
Alicia Wiley
Grantham University

Abstract
In this paper I have defined accrual and cash basis accounting. Also, I have answered the following questions: Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting? What are the purpose of a journal and a ledger? Give an example of a contra-asset, and explain how it is recorded on the ledger as a transaction. Explain what a “prepaid expense” is and how it is recorded on the ledger as a transaction. What are the major differences in recording transactions for a for-profit organization versus a not-for-profit, or are there any? List and record each transaction
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A prepaid expense, such as rent or insurance, is a type of current asset. It is recorded by decreasing Cash and increasing the prepaid amount by the same amount. Thus, the transaction only occurs in the Asset section of the Balance Sheet, and it is a zero-sum transaction.
What are the major differences in recording transactions for a for-profit organization versus a not-for-profit, or are there any? For-profit organization would record certain transactions under Owner’s Equity, whereas the Not-for-Profit would use Net Assets. Also, a for-profit would not show restrictions on Owners’ Equity.
List and record each transaction for S. Zee Outpatient Clinic under the accrual basis of accounting at December 31, 20X1, then develop a balance sheet as of December 31, 20X1, and a statement of operations for the year ended December 31, 20X1. Journal Entries | | | | | | a | Cash | | 3,000,000.00 | | | Unrestricted Contribution | | | 3,000,000.00 | | | | | | b | Equipment | | 2,000,000.00 | | | Cash | | | 2,000,000.00 | | | | | | c | Cash | | 1,000,000.00 | | | Bank Loan | | | 1,000,000.00 | | | | | | d | Supplies | | 1,500,000.00 | | | Cash | | | 1,500,000.00 | | | | | | e | Accounts Receivable | | 5,500,000.00 | | | Service Revenue | | | 5,500,000.00 | | | | | | f | Supplies Expense | | 1,000,000.00 | |
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