Chapter 2, Problem 2.2BYP

1.

To determine

Accrual basis accounting:

According to this basis of accounting, revenue should be recognized at the time when it is earned, irrespective of whether the cash received or not, and expense should be recognized at the time when it is incurred, irrespective of whether it is paid or not.

Cash basis accounting:

According to this basis of accounting, revenue should be recognized at the time of receiving in the form of cash and expense should be recognized at the time of payment.

To Determine: The net income applying the accrual accounting model.

2.

To determine

To Explain: The effect on Mr. P’s balance sheet of converting from cash to accrual.