Accrual accounting requires estimates of future outcomes. For example, the reserve for bad debts is a forecast of the amount of current receivables that will ultimately prove uncollectible. Required: Identify and explain three reasons why accounting information might deviate from the underlying economic reality. Cite examples of transactions that might give rise to each of the reaso
Bad Debts
At the end of the accounting period, a financial statement is prepared by every company, then at that time while preparing the financial statement, the company determines among its total receivable amount how much portion of receivables is collected by the company during that accounting period.
Accounts Receivable
The word “account receivable” means the payment is yet to be made for the work that is already done. Generally, each and every business sells its goods and services either in cash or in credit. So, when the goods are sold on credit account receivable arise which means the company is going to get the payment from its customer to whom the goods are sold on credit. Usually, the credit period may be for a very short period of time and in some rare cases it takes a year.
Accrual accounting requires estimates of future outcomes. For example, the reserve for
Required:
Identify and explain three reasons why accounting information might deviate from the underlying economic reality. Cite examples of transactions that might give rise to each of the reasons.
Financial Statements
These are a company's financial activities and position in a nutshell. The data is presented in a structured and easy-to-understand format. They demonstrate a company's financial strength, liquidity, and performance over time.
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