Explanation Accrual basis of accounting: In accrual Basis of accounting, the company records all the transaction that brings changes in the financial statement of the company. In accrual basis of accounting, the revenue is recognized for the accounting period, in which the goods are sold, or the service performed even if cash is not exchanged. Similarly the expenses are recognized for the accounting period, in which the business incurred expenses even if cash is not exchanged. Following are the effects of each transaction under accrual basis of expenses . In this transaction, Company Srecognizes expensesfor the month of February using the expense recognition principle, as the Company has paid wages to the instructor. Therefore, the amount of expenses incurred is $4,750. Cash is an asset account. Thus, a decrease in cash decreases the asset account. Hence, credit cash account by $4,750. As this transaction affects the assets account and stockholder’s equity account, it will not affect the liability account . Salaries and Wages expense is a component of stockholder equity account. Thus, an increase in Salaries and Wages expenses decreases the stockholders equity account. Hence, Salaries and Wages expenses account is being debited to increase its balance by $4,750. b. In this transaction, there are no expenses incurred in the month of February . This is because the Company has paid its Electricity bill for the month of January; the expenses would be incurred only when it pays the current month amount...

6th Edition

ISBN: 9781260823875

Author: PHILLIPS

Publisher: MCGRAW-HILL CUSTOM PUBLISHING

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Financial Transaction Analysis

The transaction analysis is done with the help of the accounting equation. The basic accounting equation is alternatively known as the balance sheet equation is based on the double-entry system which says that for each transaction happening in a business…

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Chapter 3, Problem 19ME

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To indicate: The amount and effect of each transaction under the accrual basis of accounting.

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Chapter 3, Problem 18ME

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Chapter 3 Solutions

FUNDAMENTALS OF FINANCIAL ACCOUNTING

Ch. 3 - Prob. 1Q Ch. 3 - When accounting was developed in the 14th and 15th...Ch. 3 - Define accrual basis accounting and contrast it...Ch. 3 - Prob. 4Q Ch. 3 - What two questions are answered by the core...Ch. 3 - Prob. 6Q Ch. 3 - What is a performance obligation?Ch. 3 - How do you report revenue from a contract that...Ch. 3 - Explain the expense recognition principle...Ch. 3 - Explain why stockholders equity is increased by...

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Chapter 3 Solutions