Chapter 3, Problem 3.18AE

Group A

LO 1, 2

(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 an but $20 million of the revenues and paid $610 million on its expenses.

1. a. Under accrual accounting, what amount of revenue should Able report for 2018? How does the revenue principle help to answer this question?
2. b. Under accrual accounting, what amount of total expense should Able report for 2018? Which accounting principle helps to answer this question?
3. c. Redo parts a and b using the cash basis. Explain how the accrual basis differs from the cash basis.
4. d. Which financial statement reports revenues and expenses? Which statement reports cash receipts and cash payments?