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    Effect of transactions on measurements (cash, accrual )

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    For each of the following transactions, indicate by what amount each of these types of measurements would be affected. Use parentheses to indicate that an event would cause a decrease. If an event does NOT involve an operating activity, place a zero in the spaces provided. The time period covered is the current month.
    Operating Activity
    Cash Basis Accrual Basis

    A) Inventory for resale was purchased for $12,000 cash
    B) Equipment was purchased for $2,500 cash
    C) Rent of $2,000 was paid, $1,000 for the current month and $1,000 for the next month
    D) Inventory that cost $2,700 was sold for $5,000 cash
    E) Depreciation of $150 was recorded

    See attached file for complete description of the problem

    © BrainMass Inc. brainmass.com December 24, 2021, 4:45 pm ad1c9bdddf
    https://brainmass.com/business/cash-vs-accrual-accounting/effect-transactions-measurements-cash-accrual-5713

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    SOLUTION This solution is FREE courtesy of BrainMass!

    Please see the attached file for answer.

    For each of the following transactions, indicate by what amount each of these types of measurements would be affected. Use parentheses to indicate that an event would cause a decrease. If an event does NOT involve an operating activity, place a zero in the spaces provided. The time period covered is the current month.
    Operating Activity
    Cash Basis Accrual Basis

    A) Inventory for resale was purchased for
    $12,000 cash ($12000) ------

    There is a cash outflow of $12,000. Also this expense will accrue when the inventory is sold which is yet to take place. Hence it is not recorded under accrual basis

    B) Equipment was purchased for
    $2,500 cash $ 0 $ 0

    This is an investing activity not an operating activity, hence $0 under both heads

    C) Rent of $2,000 was paid, $1,000
    for the current month and $1,000
    for the next month ($2000) ($1000)

    There is a cash outflow of $2000. However only $1000 is the expense that has accrued for the current month hence only $1000 has been shown as expense under accrual basis.

    D) Inventory that cost $2,700 was sold
    for $5,000 cash $ 5000 $ 2300

    There is a cash inflow of $ 5000. This revenue has accrued. Also the expense has accrued as the inventory has been sold. Hence the figure under accrual basis is $ 5000- $2700 = $ 2300 .

    E) Depreciation of $150 was recorded $ 0 ( $ 150 )

    There is no cash inflow/outflow now. However the expense (depreciation) is accruing now (it is being recorded) hence there is a decrease under accrual basis.

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    © BrainMass Inc. brainmass.com December 24, 2021, 4:45 pm ad1c9bdddf>
    https://brainmass.com/business/cash-vs-accrual-accounting/effect-transactions-measurements-cash-accrual-5713

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