accounting Discussion

Discussion 2

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Aaron Marrero posted May 12, 2020 3:49 PM

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Accrual basis of accounting helps keep record of any revenue that is earned as well as any expenses that a company has incurred. Accrual basis of accounting is preferred over cash basis because cash basis is limited to only cash transactions which is why GAAP does not allow the use of that method.

Deferral adjustments occur whenever cash/payment is submitted before the actual expense is sent in. Deferral’s will then put off expense to a later time after the cash is receiver actually paid off.

An expense of this has been seen in the lessons and problems we have done in this class such as prepaid rent or prepaid insurance expense. So, if a company prepays its insurance $800 dollars for five months. After first month the company has a deferred amount of $640 left going to that insurance pay.

So, the prepay is recorded in the debate section and the cash is placed in the credit section.

Vice versa Accruals will record an expense when it happens or cash receipts prior to any revenue being earned. This prompts accrual to put off the revenue or expense to a later time after the cash is received or it is paid.

An example is the use of utilities such as Electricity. A company that uses electricity are already accruing a utility expense for the bill is actually received as the electric company asses the amount based off of some kind of meter reading. So, the in this case it is important to adjust the journal entry to assure accurate amount of the utility expense is being presented. So, it can be placed of the company’s financial statement.

In this case the accrual of the electricity expense is debit and the actual payment is credit.

The unadjusted Trail Balance list all the revenues and expenses for the period but it is incomplete. Its relationship to Adjusted trial balance is that the adjusted trial balance will happen after the correct adjustments are made thus the report changes from unadjusted to adjusted. Adjusting journal entries are that process that are adjusted to make the report and Adjusted trial balance.

We use the whole Trial balance to complete the business ledger which keeps track of all revenue and expenses. It contains the ending balance which is beneficial to the company and it is used to produce the business financial statements.

References

Miller-Nobles, T. L., Mattison, B. L., & Horngrens, E. M. (n.d.). Financial & Managerial Accounting 6th edition.

 

TILLMON-DISCUSSION 2

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Donna Tillmon posted May 13, 2020 12:01 PM

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There are two primary types of revenue accounting: cash and accrual. In accrual based accounting, revenue and expenses are recognized and recorded at the time of occurrence. Therefore, if a business renders a service and is expected to receive payment on that service in three months, the revenue is still recognized and recorded at the time of service being rendered. This is the preferred way for many businesses to conduct their accounting because it gives a more full picture view of a business’ financial health. 

Accrual in accounting journal entries records the transaction in the month of occurrence. For example, a utility bill that a company receives in the month of May in the amount of $1,000.00. The utility expenses account will be debited $1,000.00 and the utilities payable account will be credited $1,000.00. Deferral in accounting journal entries involves delaying (or deferring) reporting an expense or transaction in a different period than that in which it was made. As an example, if a company receives $100,000.00 for work that will be done over four months’ time. Under the deferral approach, the initial $25,000.00 will be debited to the accounts receivable account, and the remaining $75,000.00 will be credited to a deferred account known as unearned revenue.

An unadjusted trial balance shows each transaction as a double entry (debit and credit) on the accounting ledger. This will show all the transactions for a given period. Adjusting journal entries will adjust or remove those entries that are not applicable for that period of time. Examples could be unearned revenue or any steady expenses—such as rent—that have been paid in advance. What is left after these journal entries is the adjusted trial balance. This balance reflects all adjusted transactions for a period of time. The trial balance ensures that all entries in a company’s general ledger are correctly balanced. This statement is derived from the income statement, statement of retained earnings, and the balance sheet.  

References

Morah, C. (2020, March 7). Accrual Accounting vs. Cash Basis Accounting: What's the Difference? Retrieved from  https://www.investopedia.com/ask/answers/09/accrual-accounting.asp  

What is the difference between an unadjusted trial balance and an adjusted trial balance?: AccountingCoach. (n.d.). Retrieved from  https://www.accountingcoach.com/blog/unadjusted-adjusted-trial-balance