Question

A company receives payment from one of its customers on August 5 for services performed on July 21. Which of the following entries would be recorded if the company uses accrual basis accounting?A Cash 1000BAccounts Receivable 1,000Accounts Payable 1000Cash 1,000 CCash 1000Service Revenue 1,000 DService Revenue 1000Cash 1,000Which of the following accounts would be used under the accrual basis of accounting, but not under cash basis accounting?a. Cashb. Unearned Revenuec. Service Revenued. Salaries ExpenseWhat is the difference between cash basis accounting and accrual basis accounting?The revenue recognition principle guides accountants in ________.a. ensuring only revenues received in cash are recordedb. determining when to record expensesc. determining when to record revenuesd. ensuring expenses are deducted from revenues

Answer 1

Answer:

1- A) Cash (Dr.) $1,000

   Accounts Receivable (Cr.) $1,000

2- b. Unearned Revenue

3- c. determining when to record revenue.

Explanation:

1- When a company sales its products to its customers on credit basis under accrual accounting system it records Accounts receivable as debit and sales as credit. At a later date when the customer pays the cash, the company makes adjusting entry; cash as debit and Account receivable as credit.

2- Cash basis accounting system is one in which revenues and expenses are only record when there is actual cash exchange which means revenue will be recorded only when cash is received from customers and expenses will be recorded when they are actually paid.

Accrual basis allows to record revenue when it is earned and expenses when they are billed. Unearned revenue account will only be used if the company is using accrual basis accounting.

3- Revenue recognition principle guides the account when to record revenue under cash basis and accrual basis accounting systems.