The Accrual Basis of Accounting Is a System That Attempts

question 10

Essay

The accrual basis of accounting is a system that attempts to measure changes in economic value in an entity as they affect the accounting equation, regardless of the timing of actual cash flows.
Required:
First, describe the timing of revenue and expense recognition under the accrual basis versus the cash basis of accounting.Then, give two examples of (1)a revenue-related transaction and (2)an expense-related transaction that would be reported at significantly different points in time using the accrual basis versus the cash basis.

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Definitions:

Total Premium

The total amount paid above the nominal or face value for a security or insurance policy.

Contract Rate

The periodic interest to be paid on the bonds that is identified in the bond indenture; expressed as a percentage of the face amount of the bond.

Market Rate

The current price in the marketplace at which an asset can be bought or sold.

Face Value

The nominal or dollar value printed on a security or financial instrument, such as a bond or stock certificate, representing its value at issuance.