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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Accruals and Deferrals

Generally accepted accounting principles require the use of accruals and deferrals in the determination of income.

Required:

How does accrual accounting affect the determination of income? Include in your discussion what constitutes an accrual and a deferral and give appropriate examples of each.

To determine

Explain the manner by which accrual accounting affect the determination of income and also discuss the reason that constitutes an accrual and a deferral by giving appropriate examples of each.

Explanation

Accrual accounting:

Accrual accounting refers to the process of measuring accrual and deferrals and reporting the effect of the economic transactions, events and circumstances on a company’s resources and claiming those resources at the time when the economic effects occur, even though                              the cash consequences may occur during the different period. This accounting involves both the revenue and expense recognition principle.

  • As per accrual accounting, the revenues are recognized by the company only for company resources created by selling products during a particular period, it does not consider those resources that are earned during the prior period or that are to be received in future period...

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