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College Accounting, Chapters 1-27

23rd Edition
HEINTZ + 1 other
ISBN: 9781337794756

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Chapter
Section
BuyFindarrow_forward

College Accounting, Chapters 1-27

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

CASH, MODIFIED CASH, AND ACCRUAL BASES OF ACCOUNTING For each journal entry shown below, indicate the accounting method(s) for which the entry would be appropriate. If the journal entry is not appropriate for a particular accounting method, explain the proper accounting treatment for that method.

1. Office Equipment

    Cash

        Purchased equipment for cash

2. Office Equipment

    Accounts Payable

        Purchased equipment on account

3. Cash

    Revenue

        Cash receipts for week

4. Accounts Receivable

    Revenue

        Services performed on account

5. Prepaid Insurance

    Cash

        Purchased prepaid asset

6. Supplies

    Accounts Payable

        Purchased prepaid asset

7. Phone Expense

    Cash

        Paid phone bill

8. Wages Expense

    Cash

        Paid wages for month

9. Accounts Payable

    Cash

        Made payment on account

Adjusting Entries:

10. Supplies Expense

    Supplies

11. Wages Expense

    Wages Payable

12. Depreciation Expense—Office Equipment

    Accumulated Depreciation—Office Equipment

To determine

Indicate the accounting method(s) for which the given entry will be appropriate and also explain the proper accounting treatment for the method if the given journal entry is inappropriate.

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.

Indicate the accounting method(s) for which the given entry will be appropriate and also explain the proper accounting treatment for the method if the given journal entry is inappropriate.

Sr. NoTransactionCash BasisModified BasisAccrual basis
1 Office equipment Debit (Expenses)  
      Cash
 (To record the purchase of equipment  for cash)
     
2Office equipment No entry  
       Accounts payable
 (To  record the purchase of equipment on account)
     
3Cash    
      Revenue
 (To  record the cash receipts for a week)
     
4Accounts receivable No entryNo entry 
      Revenue
 (To record the  service preformed on account)
     
5Prepaid insuranceDebit (Expenses)
      Cash
 (To  record the prepaid  purchase of  an asset)
    �...

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