The way I understand the difference in these two methods is as follows;
Cash Basis - this is a real time, take it as it comes method.
Accrual Basis - this is a detailed planning for the future method. If a cost of an i
...
The way I understand the difference in these two methods is as follows;
Cash Basis - this is a real time, take it as it comes method.
Accrual Basis - this is a detailed planning for the future method. If a cost of an item per year
is x, then your statement each month will reflect the month times 1/12th of the expense.
Example, you pay for your liability insurance in June of each year. it is 1200 dollars per year,
so each month of the year add 100 dollars. June will only show $600, with the cash basis
the same June statement would show the total $1200. The December statements will be the
same.
Week 2
Last week, we discussed "The Language of Business" and why the accounting information
system is important in business. This week, we are going to look at the mechanics of how it all
works. It might be a bit easier if we started with an example which would be the Genie Car
Wash, Inc. in Chapter 2 of your textbook. Pick a transaction from Genie and let us know how it
impacts the accounting equation. Make sure to identify the two accounts impacted. Why is it
important to record your selected transaction?
Transaction #10
In this transaction, Genie Car Wash Receives $22,000 cash for land sold. The sale price and
the purchase price are the same, therefore all of the transaction takes place in the assets
column. Adding $22,000 to the Cash asset account and deducting $22,000 in the Land asset
account.
Let's start with Exercise 2-16A. Select one of the nine financial transactions of the medical
practice of Bob Morin, P.C. Develop a journal entry with date and explanation. Post it in this
discussion and then conduct peer reviews of your classmates. The next requirement is to select
one of the five questions (a-e) and post an answer. Do show your computations.
What is the difference between Prepaid Rent and Rent Expense?
Rent expense - The amount of rent a company pays over whatever period is being covered on
the income statement. It is the actual amount of rent paid or amount of prepaid rent used. A
company that pays $1,500 a month for rent must debit rent expense for $1,500 and credit cash
for $1,500.
Prepaid Rent - Amount of rent that has been paid in advance. It appears on the
balance sheet. With prepaid rent, we need to make adjusting entries each month to
allocate the amount used to the expense account. For example, a company pays
$1,500 in rent each month and has a 1 year lease so rent is $18,000 per year. I am
assuming a calendar year lease beginning Jan. 1. On Jan 1 the company pays for a
years rent. This is a debit to prepaid rent for $18,000 and credit cash $18,000.
When rent is prepaid we need to make an adjusting entry each month to reflect that
1 months worth of rent has been used. We do this by a debit to rent expense for
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