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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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BuyFindarrow_forward

College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756
Textbook Problem

CASH, MODIFIED CASH, AND ACCRUAL BASES OF ACCOUNTING Prepare the entry for each of the following transactions, using the (a) cash basis, (b) modified cash basis, and (c) accrual basis of accounting.

  1. 1. Purchase supplies on account.
  2. 2. Make payment on asset previously purchased.
  3. 3. Purchase supplies for cash.
  4. 4. Purchase insurance for cash.
  5. 5. Pay cash for wages.
  6. 6. Pay cash for phone expense.
  7. 7. Pay cash for new equipment.

End-of-Period Adjusting Entries:

  1. 8. Wages earned but not paid.
  2. 9. Prepaid item purchased, partly used.
  3. 10. Depreciation on long-term assets.

To determine

Prepare the entry for the given transactions, using the (a) cash basis, (b) modified cash basis, and (c) accrual basis of accounting.

Explanation

Cash basis accounting:

Cash basis accounting is a method of accounting that records revenues only when they are received in cash and records expenses only when the cash is paid.

Modified cash basis accounting:

Modified cash basis accounting is a method of accounting that combine the both the aspects of cash basis and accrual basis. In this method the cash basis is used while recording revenues and most expenses. Exceptions are provided under this accounting when cash is paid for the asset that has a useful life more than one accounting year.

Accrual Cash basis accounting:

Accrual cash basis accounting is a method of accounting that records revenues when they are earned and records expenses when they are incurred.

(a) Prepare the entry for the given transactions by using cash basis.

(Figure 1)

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