E3-18A. (Learning Objectives 1, 2: Explain how accrual accounting differs from cash-basisaccounting; apply the revenue and expense recognition principles) During 2018, Able Network,Inc., which designs network servers, earned revenues of $820 million. Expenses totaled $520million. Able collected all but $20 million of the revenues and paid $610 million on its expenses.a. Under accrual accounting, what amount of revenue should Able report for 2018? Howdoes the revenue principle help to answer this question?b. Under accrual accounting, what amount of total expense should Able report for 2018?Which accounting principle helps to answer this question?c. Redo parts a and b using the cash basis. Explain how the accrual basis differs from thecash basis.d. Which financial statement reports revenues and expenses? Which statement reports cashreceipts and cash payments?
E3-18A. (Learning Objectives 1, 2: Explain how accrual accounting differs from cash-basis
accounting; apply the revenue and expense recognition principles) During 2018, Able Network,
Inc., which designs network servers, earned revenues of $820 million. Expenses totaled $520
million. Able collected all but $20 million of the revenues and paid $610 million on its expenses.
a. Under accrual accounting, what amount of revenue should Able report for 2018? How
does the revenue principle help to answer this question?
b. Under accrual accounting, what amount of total expense should Able report for 2018?
Which accounting principle helps to answer this question?
c. Redo parts a and b using the cash basis. Explain how the accrual basis differs from the
cash basis.
d. Which financial statement reports revenues and expenses? Which statement reports cash
receipts and cash payments?
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