Topic: Bases of Accounting: Accrual vs. Cash

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q16 – Bases of Accounting: Accrual vs. Cash

This question asks for the trade debtor's balance to be shown in the balance sheet after making a 5% provision for doubtful debts.

What is the trade debtors’ balance to be shown in the balance sheet if 5% is the provision for doubtful debts?

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q15 – Bases of Accounting: Accrual vs. Cash

This question asks for the amount to be credited to the Profit and Loss Account based on a revised provision for doubtful debts.

Calculate the amount to be credited to the Profit and Loss Account if the current provision for doubtful debts is 5%.

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q6c – Bases of Accounting: Accrual vs. Cash

Prepare the Rental Income Account to recognize rent in the profit or loss.

D’favour owns several properties in Lagos that are let out to tenants. The summary of transactions at December 31, 2014, is given below:

Item N’000
Accrued rent at December 31, 2013 440
Prepaid rent at December 31, 2013 250
Rent received during 2014 2,550
Accrued rent at December 31, 2014 350
Prepaid rent at December 31, 2014 480
Uncollectable rent to be written-off 35
Agreement fee received 50

Required:
Prepare the Rental Income Account to determine the amount of rent to be recognized in the Statement of Profit or Loss. (8 Marks)

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  • 4 Marks

FA – Nov 2015 – L1 – SB – Q6b – Bases of Accounting: Accrual vs. Cash

Calculate rent recognized for profit or loss and financial position as of March 31, 2014.

Oluyemi Ventures prepares its financial statements to March 31 each year. The business pays rent quarterly in advance on January 1, April 1, July 1, and October 1 each year. The annual rent is N600,000. On June 30, 2013, the rent was increased to N900,000 per annum.

Required:
i. Calculate the amount of rent that will be recognized in the Statement of Profit or Loss for the year ended March 31, 2014. (3 Marks)
ii. Calculate the amount to be recognized in the Statement of Financial Position as at March 31, 2014. (1 Mark)

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q6a – Bases of Accounting: Accrual vs. Cash

Differentiate accounting bases and discuss a setback of the cash basis.

i. Differences between Accounting Bases

  • Cash Basis: Recognizes revenue and expenses only when cash is received or paid. It does not match income with expenses incurred in the same period.
  • Accrual Basis: Recognizes revenue when earned and expenses when incurred, regardless of when cash transactions occur. It provides a more accurate picture of a company’s financial position.
  • Break-up Basis: Assumes that a business will not continue as a going concern, and assets are valued at their realizable amounts rather than their carrying amounts.

ii. Setback of Cash Basis

  • It does not provide a true picture of financial performance, as income and expenses may not be recorded in the period to which they relate.

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  • 1 Marks

FA – May 2018 – L1 – SA – Q14 – Bases of Accounting: Accrual vs. Cash

Determines the correct timing of income recognition under the accrual basis of accounting.

In the statement of cashflows, when recognizing income under the accrual basis, which of the following statements is correct?
A. Income is recognized when earned and cash is received
B. Income is recognized only when it is not certain that cash will be received
C. Income is recognized only when cash is received
D. Income is recognized when earned and not necessarily when cash is received
E. Accrued income is only recognized in the financial statements.

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  • 1 Marks

FA – May 2018 – L1 – SA – Q8 – Bases of Accounting: Accrual vs. Cash

Identifies the requirement for revenue recognition under the cash basis of accounting.

The cash basis of accounting requires the recognition of revenue only when they are:
A. Due
B. Earned
C. Paid
D. Received
E. Budgeted

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  • 1 Marks

FA – Nov 2023 – L1 – SA – Q10 – Bases of Accounting: Accrual and Cash

Identify the correct description of the cash basis of accounting.

Which of the following statements correctly describes cash basis of accounting?

  • A. Revenue is recognised in the period when it is earned, regardless of when the cash is received
  • B. Expenses are recognised in the period when they are incurred, regardless of when they are paid
  • C. Revenue is recognised in the period when the cash is received, regardless of when it is earned
  • D. Expenses are recognised in the period when they are earned, regardless of when they are incurred
  • E. Both revenue and expenses are recognised in the period when they are occurred, regardless of cash transactions

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  • 1 Marks

FA – May 2016 – L1 – SA – Q1 – Bases of Accounting: Accrual vs. Cash

A question regarding the bases used in preparing financial statements.

Which of the following bases is used in preparation of financial statements?
A. Break up basis
B. Cash basis
C. Accrual basis
D. Modified cash basis
E. Commitment basis

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  • 1 Marks

FA – MAY 2015 – L1 – SA – Q15 – Bases of Accounting: Accrual vs. Cash

Identify the correct condition for recognizing income under the accrual basis of accounting.

When recognizing income under the accrual basis, which of the following statements is correct?
A. Income is recognized when earned and cash is received.
B. Income is recognized only when it is not certain that cash will be received.
C. Income is recognized only when cash is received.
D. Income is recognized when earned and not necessarily when cash is received.
E. Accrued income is only recognized in the financial statements.

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q16 – Bases of Accounting: Accrual vs. Cash

This question asks for the trade debtor's balance to be shown in the balance sheet after making a 5% provision for doubtful debts.

What is the trade debtors’ balance to be shown in the balance sheet if 5% is the provision for doubtful debts?

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  • 1 Marks

FA – Nov 2011 – L1 – SA – Q15 – Bases of Accounting: Accrual vs. Cash

This question asks for the amount to be credited to the Profit and Loss Account based on a revised provision for doubtful debts.

Calculate the amount to be credited to the Profit and Loss Account if the current provision for doubtful debts is 5%.

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q6c – Bases of Accounting: Accrual vs. Cash

Prepare the Rental Income Account to recognize rent in the profit or loss.

D’favour owns several properties in Lagos that are let out to tenants. The summary of transactions at December 31, 2014, is given below:

Item N’000
Accrued rent at December 31, 2013 440
Prepaid rent at December 31, 2013 250
Rent received during 2014 2,550
Accrued rent at December 31, 2014 350
Prepaid rent at December 31, 2014 480
Uncollectable rent to be written-off 35
Agreement fee received 50

Required:
Prepare the Rental Income Account to determine the amount of rent to be recognized in the Statement of Profit or Loss. (8 Marks)

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  • 4 Marks

FA – Nov 2015 – L1 – SB – Q6b – Bases of Accounting: Accrual vs. Cash

Calculate rent recognized for profit or loss and financial position as of March 31, 2014.

Oluyemi Ventures prepares its financial statements to March 31 each year. The business pays rent quarterly in advance on January 1, April 1, July 1, and October 1 each year. The annual rent is N600,000. On June 30, 2013, the rent was increased to N900,000 per annum.

Required:
i. Calculate the amount of rent that will be recognized in the Statement of Profit or Loss for the year ended March 31, 2014. (3 Marks)
ii. Calculate the amount to be recognized in the Statement of Financial Position as at March 31, 2014. (1 Mark)

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  • 8 Marks

FA – Nov 2015 – L1 – SB – Q6a – Bases of Accounting: Accrual vs. Cash

Differentiate accounting bases and discuss a setback of the cash basis.

i. Differences between Accounting Bases

  • Cash Basis: Recognizes revenue and expenses only when cash is received or paid. It does not match income with expenses incurred in the same period.
  • Accrual Basis: Recognizes revenue when earned and expenses when incurred, regardless of when cash transactions occur. It provides a more accurate picture of a company’s financial position.
  • Break-up Basis: Assumes that a business will not continue as a going concern, and assets are valued at their realizable amounts rather than their carrying amounts.

ii. Setback of Cash Basis

  • It does not provide a true picture of financial performance, as income and expenses may not be recorded in the period to which they relate.

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  • 1 Marks

FA – May 2018 – L1 – SA – Q14 – Bases of Accounting: Accrual vs. Cash

Determines the correct timing of income recognition under the accrual basis of accounting.

In the statement of cashflows, when recognizing income under the accrual basis, which of the following statements is correct?
A. Income is recognized when earned and cash is received
B. Income is recognized only when it is not certain that cash will be received
C. Income is recognized only when cash is received
D. Income is recognized when earned and not necessarily when cash is received
E. Accrued income is only recognized in the financial statements.

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  • 1 Marks

FA – May 2018 – L1 – SA – Q8 – Bases of Accounting: Accrual vs. Cash

Identifies the requirement for revenue recognition under the cash basis of accounting.

The cash basis of accounting requires the recognition of revenue only when they are:
A. Due
B. Earned
C. Paid
D. Received
E. Budgeted

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  • 1 Marks

FA – Nov 2023 – L1 – SA – Q10 – Bases of Accounting: Accrual and Cash

Identify the correct description of the cash basis of accounting.

Which of the following statements correctly describes cash basis of accounting?

  • A. Revenue is recognised in the period when it is earned, regardless of when the cash is received
  • B. Expenses are recognised in the period when they are incurred, regardless of when they are paid
  • C. Revenue is recognised in the period when the cash is received, regardless of when it is earned
  • D. Expenses are recognised in the period when they are earned, regardless of when they are incurred
  • E. Both revenue and expenses are recognised in the period when they are occurred, regardless of cash transactions

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You're reporting an error for "FA – Nov 2023 – L1 – SA – Q10 – Bases of Accounting: Accrual and Cash"

  • 1 Marks

FA – May 2016 – L1 – SA – Q1 – Bases of Accounting: Accrual vs. Cash

A question regarding the bases used in preparing financial statements.

Which of the following bases is used in preparation of financial statements?
A. Break up basis
B. Cash basis
C. Accrual basis
D. Modified cash basis
E. Commitment basis

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You're reporting an error for "FA – May 2016 – L1 – SA – Q1 – Bases of Accounting: Accrual vs. Cash"

  • 1 Marks

FA – MAY 2015 – L1 – SA – Q15 – Bases of Accounting: Accrual vs. Cash

Identify the correct condition for recognizing income under the accrual basis of accounting.

When recognizing income under the accrual basis, which of the following statements is correct?
A. Income is recognized when earned and cash is received.
B. Income is recognized only when it is not certain that cash will be received.
C. Income is recognized only when cash is received.
D. Income is recognized when earned and not necessarily when cash is received.
E. Accrued income is only recognized in the financial statements.

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