Week 4 Fin/370

Learning Team Reflection Week 3

September 22, 2013

ACC/290

Kevin Waters

Learning Team Reflection

Cash basis accounting consists of expenses that are reported on the income statement when the cash is paid out, it also accounts for cash that is received by customers by reporting on the income statement. Cash basis accounting is most commonly used in small businesses and personal finances (Investopedia. 2009).

Accrual basis accounting consists of expenses that are reported on the income statement in a designated period for when they occur or when they expire. This is often in a different time period for when the payment was made. Accrual basis accounting also reports revenue on the income statement but only when they are earned, which occurs before the cash is received from the customer. Accrual basis accounting is most commonly used by large businesses (Investopedia. 2009).

Adjusting entries are a crucial to the accounting process. Journal entries are done at the end of the accounting period because they adjust income and expense accounts to follow the accrual concept of accounting. There are different types of adjusting entries, accruals, prepayments, and non-cash. Accruals are things such as revenues that have not yet been received or recorded and expenses that not have been paid or recorded. Prepayments are the different revenues that have been received in advance, these are also recorded as liabilities. An example of this would be prepaid rent or office supplies. Non-cash would be entries that are recorded not as cash items, such as depreciation expenses.

I will use this as an example of creating an adjustment of entries.

Office Supplies having an original cost of $3,221 unused until the end of period. Office supplies having original cost of $15,586 will be shown on unadjusted trial balance.

Prepaying rent of $27,000 for the months of February and March

Equipment cost of $100,000 useful life 5 years the value of salvage is $15,000

Interest...