Comparison of cash and accrual basis accounting
A jurisdiction has legally obligated expenses in Fiscal Year 2014 totaling $1,000,000. The jurisdiction has legally recognized and collectible revenues of $1,100,000.
(1) Under cash basis accounting, what would be the year-end balance if the jurisdiction only pays its vendors and employees $800,000 of its legally obligated expenses and receives all of its legally collectible revenues? The remainder of its expenses would be paid in Fiscal Year 2016. What would be the accrual basis balance under these conditions?
(2) Under cash basis accounting, what would be the year-end balance if the jurisdiction pays all of its legally obligated expenses but has received only $900,000 of its legally collectible revenues? What would be the accrual basis balance under these conditions?
1.a. Under the Cash accounting basis where revenue and expenses are recognized whenthey are received from customers and when paid to employees and supplierrespectively, the end year balance will…
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