Q17Q - Intermediate Accounting (Kieso)

Question

List two types of transactions that would receive differentaccountingtreatments using (a) strict cash basis accounting, and (b) a modified cash basis.

Step-by-Step Solution

Answer

The sales revenue is recorded when cash is received under a strict cash basis accounting, but it is recognized when earned under modification. The wages and salaries are recognized when paid on a cash basis, but under a modified basis, it is recognized when liability for expenses arises

Step 1: Meaning of Financial Statements

The financial statement is the financial reportproduced by the company. The company prepares its financial statement to know the result of the operations and financial position of the business.

Step 2: Treatment under strict cash basis accounting

The strict cash basis accounting recognizes revenues and expenses when revenues and expenses are received and paid, respectively; therefore, sales revenue and salary expenses are recognized when received or paid, respectively. 

Step 3: Treatment under modified cash basis accounting

The modified cash basis accounting considers both accrual and cash basis accounting. It uses to record long-term assets on an accrual basis; however, short-term assets are recorded using cash basis accounting; therefore, sales revenue and salaries expense are recognized when earned or incurred, respectively.