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?2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
PAGE 194
Fundamental Accounting Principles, 21st Edition
?2013 by McGraw-Hill Education. This is proprietary material solely for authorized instructor use. Not authorized for sale or distribution in any manner. This document may not be copied, scanned, duplicated, forwarded, distributed, or posted on a website, in whole or part.
PAGE 125
Solutions Manual, Chapter 3
Chapter 3
Adjusting Accounts and Preparing Financial Statements
Questions
1. The cash basis of accounting reports revenues when cash is received while the accrual basis reports revenues when they are earned. The cash basis reports expenses when cash is paid while the accrual basis reports expenses when they are incurred and matched with revenues they generated.
2. The accrual basis of accounting generally provides a better indication of company performance and financial condition than does the cash basis. Also, the accrual basis increases the comparability of financial statements from one period to the next. Thus, business decision makers generally prefer the accrual basis.
3. Businesses that have major seasonal variations in sales are most likely to select the natural business year as the fiscal year.
4. A prepaid expense is an item paid for in advance of receiving its benefits. As such, it is reported as an asset on the balance sheet.
5. Long-term tangible plant assets such as equipment, buildings, and machinery lead to adjustments for depreciation. Generally, land is the only long-term tangible plant asset that does not require depreciation.
6. The Accumulated Depreciation contra asset account is used for depreciation. It provides financial statement users with additional information about the relative a
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