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    Define accrual accounting and contrast it with cash basis accounting.
    What four conditions must normally be met for revenue to be recognized under accrual basis

    Reporting Cash Basis versus Accrual Basis Income
    Mostert Music Company had the following transactions in March:

    a. Sold instruments to customers for $10,000; received $6,000 in cash and the rest on account.
    The cost of the instruments was $7,000.

    b. Purchased $4,000 of new instruments inventory; paid $1,000 in cash and owed the rest on

    c. Paid $600 in wages for the month.
    d. Received a $200 bill for utilities that will be paid in April.
    e. Received $1,000 from customers as deposits on orders of new instruments to be sold to the
    customers in April.

    Cash Basis Income Statement Accrual Basis Income Statement
    Revenues: Revenues:
    Cash sales $ Sales to customers $
    Customer deposits
    Expenses: Expenses:
    Inventory purchases Cost of sales
    Wages paid Wages expense
    Utilities expense
    Cash income $ Net income $

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    Solution Preview

    The response addresses the queries posted in 506 words with references.

    //As per the guidelines, we have to understand the concept of 'Accrual Accounting'. Then, we will discuss about the differences between the Accrual accounting and Cash basis accounting, which will assist us in understanding the differences between the two types of accountings, effectively.//

    Accrual Accounting

    The Accrual Accounting is the most widely used accounting method. All the business transactions are recorded on the delivery of the product and services without considering the receipt of amount. The income and expenses are recorded when it occur; whether amount is paid/received or not. It helps to provide true financial situation and obligation of a company (Daily, 2007).

    Contrast with Cash Basis Accounting

    The Cash Basis Accounting is the different accounting system from the Accrual Accounting Method. As the name denotes, in the ...

    Solution Summary

    The response addresses the queries posted in 506 words with references.