Financial Accounting
Financial Accounting
9th Edition
ISBN: 9781259738692
Author: Libby
Publisher: MCG
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Chapter 3, Problem 3.2E

Reporting Cash Basis versus Accrual Basis Income

Payson Sports, Inc., sells sports equipment to customers. Its fiscal year ends on December 31. The following transactions occurred in the current year:

  1. a. Purchased $250,000 of new sports equipment inventory: paid $90,000 in cash and owed the rest on account.
  2. b. Paid employees $180,300 in wages for work during the year, an additional $3,700 for the current year’s wages will be paid in January of the next year.
  3. c. Sold sports equipment to customers for $750,000; received $500,000 in cash and owed the rest on account. The cost of the equipment was $485,000.
  4. d. Paid $17,200 cash for utilities tor the year.
  5. e. Received $70,000 from customers as deposits on orders of new winter sports equipment to be sold to the customers in January of the next year.
  6. f. Received a $1,930 utilities bill for December of the current year that will be paid in January of the next year.

Required:

1. Complete the following statements:

Cash Basis Income Statement Accrual Basis Income Statement
Revenues Revenues
Cash sales Sales to customers
Customer deposits
Expenses Expenses
Inventory purchases Cost of sales
Wages paid Wages expense
Utilities paid Utilities expense
Net income Net income

2. Which basis of accounting (cash or accrual) provides more useful information to investors, creditors, and other users? Why ?

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Chapter 3 Solutions

Financial Accounting

Ch. 3 - Complete the following matrix by entering either...Ch. 3 - Prob. 12QCh. 3 - State the equation for the net profit margin ratio...Ch. 3 - Which of the following is not a specific account...Ch. 3 - Which of the following is not one of the criteria...Ch. 3 - The expense recognition principle controls a....Ch. 3 - Prob. 4MCQCh. 3 - Prob. 5MCQCh. 3 - Prob. 6MCQCh. 3 - Prob. 7MCQCh. 3 - Prob. 8MCQCh. 3 - Prob. 9MCQCh. 3 - Prob. 10MCQCh. 3 - Prob. 3.1MECh. 3 - Reporting Cash Basis versus Accrual Basis Income...Ch. 3 - Identifying Revenues The following transactions...Ch. 3 - Identifying Expenses The following transactions...Ch. 3 - Prob. 3.5MECh. 3 - Prob. 3.6MECh. 3 - Determining the Financial Statement Effects of...Ch. 3 - Prob. 3.8MECh. 3 - Prob. 3.9MECh. 3 - Identifying the Operating Activities in a...Ch. 3 - Prob. 3.11MECh. 3 - Prob. 3.1ECh. 3 - Reporting Cash Basis versus Accrual Basis Income...Ch. 3 - Identifying Revenues Revenues are normally...Ch. 3 - Identifying Expenses Revenues are normally...Ch. 3 - Prob. 3.5ECh. 3 - Determining Financial Statement Effects of Various...Ch. 3 - Recording Journal Entries Sysco, formed in 1969,...Ch. 3 - Prob. 3.8ECh. 3 - Prob. 3.9ECh. 3 - Analyzing the Effects of Transactions in...Ch. 3 - Preparing an Income Statement Refer to E3-10....Ch. 3 - Prob. 3.12ECh. 3 - Analyzing the Effects of Transactions in...Ch. 3 - Prob. 3.14ECh. 3 - Prob. 3.15ECh. 3 - Prob. 3.16ECh. 3 - Prob. 3.17ECh. 3 - Prob. 3.18ECh. 3 - Prob. 3.19ECh. 3 - Prob. 3.20ECh. 3 - Prob. 3.1PCh. 3 - Recording Journal Entries (AP3-2) Ryan Terlecki...Ch. 3 - Prob. 3.3PCh. 3 - Prob. 3.4PCh. 3 - Prob. 3.5PCh. 3 - Prob. 3.6PCh. 3 - Prob. 3.7PCh. 3 - Recording Nonquantitative Journal Entries (P3-1)...Ch. 3 - Prob. 3.2APCh. 3 - Prob. 3.3APCh. 3 - Prob. 3.4APCh. 3 - Prob. 3.5APCh. 3 - Prob. 3.6APCh. 3 - Accounting for Operating Activities in a New...Ch. 3 - Finding Financial Information Refer to the...Ch. 3 - Finding Financial Information Refer to the...Ch. 3 - Comparing Companies within an Industry Refer to...Ch. 3 - Analyzing a Company over Time Refer to the annual...Ch. 3 - Prob. 3.6CPCh. 3 - Evaluating an Ethical Dilemma Mike Lynch is the...
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