Cash Accounting

Cash Accounting

Q4

Cash accounting.

Here, a business only records revenue and expenses after payment of the cash. For example in the case a business firm Y sells writing papers. In January, a school orders fifty rims of printing papers. The school has a law of paying after 60 days of the transaction. Business firm Y will record no revenue in January, February and record amount paid in March. It also applies to payments.

Accrual accounting.

The principle of matching is part of accrual accounting. In this type of accounting, revenue and operating cost are recorded in the time in which they incurred. For example, bank X has rented a building for its transactions, and it is to pay semi- annually costing $1200000 in January and July. The bank would not record $ 2400000 in a year but will record $200000 per month.

Modified accrual accounting

It combines both cash and accrual accounting. Here, Revenues are recognized merely when they are available are measurable. Like increase of funds to be paid in a period of 30 days, it is recorded hereunder accrual basis since it is measurable time and resources are available.

Q5

The principle of accounting is part of accrual accounting. It enables counting of revenues and all associated costs at the same accounting period, it also pairs revenue with the cost that were incurred to generate the same revenue.

Q6

Accounting equation is a simplified way of deeper understanding of how assets, liabilities and owner’s equity (net assets) interrelate in a business.

Assets = Liabilities + Net assets

It is imperative since it enables reading of the balance sheet and it also aids comprehending company’s financial statement on the wall.

Q8

Financial statement accounting board (FASB 117) has a role to establish for general purpose external financial statements provided by not- for-profit organization. It defines financial statement for non- profits requiring them to use three funds or rather classes in non- profit financial statement which are unrestricted net assets, temporarily restricted net asset and permanently restricted net asset. It has its objective that is enhancing the relevance understanding also compatibility of financial statement issued by the very organizations. The statement also requires the organizations’ net assets, revenues, operating cost, gains and sufferers be top secret based on existence or absence of donor-imposed restrictions

Q9

The non- profit are expected to report their daily operations (revenue and expenses) and  they have also an obligation to report any income at hand which cannot be spend now but can be spend in future lastly they should report to the government revenue that they have a limit no to use based on donors’ requirements. FASB 116 dictates all this oversight by the government.

The income statement has three categories that explains the condition of the business; operating cash flow, financing cash flow and investing cash flow. These aims to show where the non- profit have received and spend its money and their current status. The balance sheet on the other hand calls for a statement of financial position of the non- profits. It explores on their net assets by finding out the difference in liabilities and the assets.

Part 2

Q1

The land on which the non- profit is located and it owns it is an asset

Q2

Salaries owned to employees are a liability

Q3

A $ 100000 grant to be paid next year for a particular purpose by an organization is a net asset

Q4

Government bonds owned by the non- profits is a liability

Q5

Prepaid insurance is an asset

Q6

15 years mortgage on 0rganization’s building is a liability

Q7

Salaries to be paid to the employees is an expense

Q8

Supplies in the closet are an asset

Q9

A bill from staples is an expense

Q10

Money owed to the non- profit and were yet to be paid is the net asset.