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STUDY UNIT TEN

1. Accrual basis accounting – measures and reports net income for an accounting period, such as a month or a year, based on accrual accounting income and expense recognition rules. Accrual accounting requires single cash transactions (e.g., purchase of equipment, building, etc.) to be accounted for over their useful lives (e.g., 5, 10, 20, or more years).

2. Cash basis accounting – measures and reports net income based on revenue recognition at cash receipt and expense recognition at cash payment.

3. Direct method – the method of presenting the operating activities section of the statement of cash flow recording net cash from gross receipts and gross payments.

4. Indirect method – the method of presenting the operating activities section of the statement of cash flows that adjusts net income to compute cash flow from operating activities.

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