Financial Accounting Accrual and Cash-Basis Accounting

In this module, the discussion focuses on the differences between accrual and cash-basis accounting. We will also look at the deferral and accrual adjusting journal entries. Students will be asked to prepare an example of each adjusting journal entry type (deferral and accrual). Students will also be expected to understand the difference between an Unadjusted Trial Balance and an Adjusted Trial Balance, and the purpose of the Adjusted Trial Balance.

1). Define the accrual basis of accounting, and why it is generally preferred over the cash basis?

2). Describe the two main types of adjusting entries (deferrals and accruals), and give at least 1 example of EACH of the 2 types. (ie, You should have 2 complete journal entries – 1 deferral entry, and 1 accrual entry – Be sure to have a debit account and a credit account with amounts in your entry)

Sample Solution

3). Explain what an Unadjusted Trial Balance is, and the relationship between the Unadjusted Trial Balance, adjusting journal entries, and the Adjusted Trial Balance.

4). Finally, what do we do with the Trial Balance, and what statements is it used to produce?

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