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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Exercise 3-38 Accrual- and Cash-Basis Expense Recognition

The following information is taken from the accrual accounting records of Kroger Sales Company:

  1. During January, Kroger paid $9,150 for supplies to in sales to customers during the next 2 months (February and March). The supplies will be used evenly over the next 2 months.
  2. Kroger pays its employees at the end of each month for salaries earned during that month. Salaries paid at the end of February and March amounted to $4,925 and $5,100, respectively.
  3. Kroger placed an advertisement in the local newspaper during March at a cost of $850. The ad promoted the pre-spring sale during the last week in March. Kroger did not pay for the newspaper ad until mid-April.

Required:

  1. Under cash-basis accounting, how much exvxn.se should Kroger report for February and March?
  2. Under accrual-basis accounting, how much expense should Kroger report for February and March?
  3. CONCEPTUAL CONNECTION Which basis of accounting provides the most useful information for decision-makers? Why?

To determine

Concept Introduction:

Accounting is an art of recording, classifying, analyzing and summarizing the financial statement to produce meaningful information and reports.

Accounting is done with two methods as follows:

Cash Basis accounting: Under the cash basis accounting all the cash receipts for the period are considered as revenue and all the cash payments for the period are considered as expenses and net income us calculated.

Accrual Basis accounting: Under the accrual basis, the revenue and expenses are recorded accreting to their accrual for the given period and cash receipts and payments are not considered to decide their accrual. The net income is calculated using the accrued revenue and accrued expenses belonging to the particular period.

Requirement-1:

The amount of expense as per cash basis methods for February and March.

Explanation

Under the cash basis accounting all the cash receipts for the period are considered as revenue and all the cash payments for the period are considered as expenses and net income us calculated.

The amount of expense as per cash basis methods for February and March is as follows:

    Cash Basis ExpensesFebruary March
    a...
To determine

Concept Introduction:

Accounting is an art of recording, classifying, analyzing and summarizing the financial statement to produce meaningful information and reports.

Accounting is done with two methods as follows:

Cash Basis accounting: Under the cash basis accounting all the cash receipts for the period are considered as revenue and all the cash payments for the period are considered as expenses and net income us calculated.

Accrual Basis accounting: Under the accrual basis, the revenue and expenses are recorded accreting to their accrual for the given period and cash receipts and payments are not considered to decide their accrual. The net income is calculated using the accrued revenue and accrued expenses belonging to the particular period.

Requirement-2:

The amount of expense as per Accrual basis methods for February and March.

To determine

Concept Introduction:

Accounting is an art of recording, classifying, analyzing and summarizing the financial statement to produce meaningful information and reports.

Accounting is done with two methods as follows:

Cash Basis accounting: Under the cash basis accounting all the cash receipts for the period are considered as revenue and all the cash payments for the period are considered as expenses and net income us calculated.

Accrual Basis accounting: Under the accrual basis, the revenue and expenses are recorded accreting to their accrual for the given period and cash receipts and payments are not considered to decide their accrual. The net income is calculated using the accrued revenue and accrued expenses belonging to the particular period.

Requirement-3:

The which method provides the most useful information for decision makers.

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