Accrual vs. Cash Basis Accounting
Submit written responses to these questions.
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- Explain the difference between the accrual basis of accounting and the cash basis of accounting. What are the major reasons for using accrual accounting?
- What are the purpose of a journal and a ledger?
- Give an example of a contra-asset, and explain how it is recorded on the ledger as a transaction.
- Explain what a “prepaid expense” is and how it is recorded on the ledger as a transaction.
- What are the major differences in recording transactions for a for-profit organization versus a not-for-profit, or are there any?
- List and record each transaction for S. Zee Outpatient Clinic under the accrual basis of accounting at December 31, 20X1. then develop a balance sheet as of December 31, 20X1, and a statement of operations for the year ended December 31, 20X1.
- The clinic received a $3,000,000 of unrestricted cash contribution from the community. (Hint: this transaction increases the unrestricted net assets account.)
- The clinic purchased $2,000,000 of equipment. The clinic paid cash for the equipment.
- The clinic borrowed $1,000,000 from the bank a long-term basis,
- The clinic purchased $1,500,000 of supplies on credit.
- The clinic provided $5,500,000 services on credit.
- In the provision of these services, the clinic used $1,000,000 of supplies.
- The clinic received $500,000 in advance to care for capacitated patients.
- The clinic incurred $2,000,000 in labor expenses and paid cash for them.
- The clinic incurred $1,500,000 in general expenses and paid cash for them.
- The clinic received $4,500,000 form patients and their third parties in payment of outstanding accounts.
- The clinic met $300,000 of its obligation to capacitated patients in Transaction g.
- The clinic made a $100,000 cash payment on the long-term loan.
- The clinic also made a cash interest payment of $50,000.
- A donor made a temporarily restricted donation of $100,000 to be used for operations.
- The clinic recognized $200,000 in depreciation for the year.
- The clinic recognized $500,000 of patient accounts would not be received.
- How do capital structure rations and liquidity rations differ in providing insight into an organization’s ability to pay debt obligations?
- Identify and explain two situations where an organization might have increasing activity rations but declining profitability
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