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Running head: ACCOUNTING RESPONSE QUESTIONS 1

Response to the Accounting Questions

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RESPONSE TO THE ACCOUNTING QUESTIONS 2

Response to week3 accounting questions

Question 1

The main difference between the cash basis of accounting and the accrual basis of accounting is

that, in cash basis method of accounting, revenues on the income statement in an organization

are reported only after the money is received in an organization Gabric, 2018). Therefore, this

means that the expenses of the organization are recorded after the cash is paid out (Stice, Stice,

Cottrell, D. M., & Stice, 2019). On the other hand, Accrual basis of accounting generally refers

to an accounting method where revenues are recognized based on the income statements earned.

Question2

The main reason why the accrual basis of accounting is highly applied by most of the

organization is that it gives a useful and accurate image of the organization's financial statements

(Gabric, 2018). As the name suggests, accrued means that an expense or income is earned even if

related payable or receivable will happen in the future.

Question3

Based on the knowledge of accounting principles, business firms which often select a n

economic year that corresponds with their natural business cycle rather than the calendar year are

often associated with little amounts of seasonal variations in sales.

Question4

Prepaid expense in accounting refers to an asset that generally appears within the balance sheet

after making advance payments on products that are to be received within the next one year

RESPONSE TO THE ACCOUNTING QUESTIONS 3

(twelve months) (Stice et al.,2019; Gabric, 2018). In general, the prepaid is reported on the

balance sheet of the organization as a current asset.

Question5

Assets that are likely to be used for a more extended period during a particular year needs

adjusting entries to record depreciation (Gabric, 2018). Such assets may include machinery and

building except for land.

Question6

The contra account that is applied in recording as well as reporting depreciation effects is

referred to as the amortization of assets. Frequently, it is used because it allows for a proper audit

and quick determination of the depreciation accumulated in an asset.

Question7

Increased revenue is a sale that comprises of an income that has been earned and recognized by a

seller but is yet to receive payments from the customer Gabric, 2018). Ideally, it means that

particular service or good has been granted to a buyer, but haven't paid for it. An excellent

example of accrued revenue is rent. The house tenants benefit by not paying for the rent until the

next month.

Question8

Under the assets method, a prepaid expense account or asset is recorded when the amount

is paid. Some of the typical forms of Prepaid expense accounts include and not limited to prepaid

rent, office supplies as well as prepaid insurance (Gabric, 2018). In this context, the company

tries to accomplish making sure that the incurred (used/expired) portion is reflected in expense

RESPONSE TO THE ACCOUNTING QUESTIONS 4

while the remaining part into asset account respectively. Therefore, if a prepaid expense is

initially accounted as an expense, then at the end of an accounting period, only the actual

expense amount remains in the accounts reflecting the expense. The future cost, which shows tha

the unexpired portion must be debited to the prepaid asset account and credited to the expense

account respectively.

Question number 9

According to the apple’s balance sheet depicted in the e-book’s appendix, accrued revenues

appears to be a typical form of an account that needs to be adjusted before the annual financial

statements are prepared (Gabric, 2018). The purpose of making this adjustment is to ensure that

revenues are reflected as per the time in which they occurred. Therefore, if the revenues are not

adjusted, the company’s net income would be understated; hence, the depiction of low income of

the firm.

Question 10: Review the Balance Sheet of Google

Based on the Google’s balance sheet, the gross total cost (gross PP&E) paid at the start of the

balance sheet is $1.2 million and this cost includes not only the purchase prices for different

assets and equipment but their shipping costs (Gabric, 2018). The total expenditure is about $

300,00 incurred in upgrading some equipment and buying of new assets which gives a total of

$1.6 million worth of Google’s fixed assets. Since most of Google's fixed assets are periodically

repaired and maintained, the account mentioned above should be adjusted to reflect the costs

incurred in repair and maintenance.

RESPONSE TO THE ACCOUNTING QUESTIONS 5

References

Gabric, D. (2018). Determination of Accounting Manipulations in the Financial Statements

Using Accrual Based Investment Ratios. Economic Review: Journal of Economics and

Business, 16(1), 71-81.

Stice, J. D., Stice, E. K., Cottrell, D. M., & Stice, D. (2019). Teaching Operating Cash Flow: One

Matrix for Analysis–Two Methods for Presentation. In Advances in Accounting

Education: Teaching and Curriculum Innovations (pp. 199-215). Emerald Publishing

Limited.

RESPONSE TO THE ACCOUNTING QUESTIONS 6

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