Accounting: Tools for Business Decision Making, 5th Edition

Published by Wiley
ISBN 10: 1118128168
ISBN 13: 978-1-11812-816-9

Chapter 12 - Statement of Cash Flows - Questions: 13

Answer

a) DEFINATION FOR ACCRUAL BASIS b) DEFINATION OF CASH BASIS c) REASON TO CONVERT ACCRUAL BASED INCOME TO CASH

Work Step by Step

a) Accrual based accounting is the one in which even the Non-transaction pertaining to a particular period are recorded. The actual out-inflow of cash are not considered, it's prepared following the accrual system i.e. which ever transaction accrues to this period is recorded whether or not there is any actual cash movement. b) Cash basis is system of accounting is that accounting in which only those transactions are recorded where actual movement of cash takes place. Whether or not that transaction accrues in this period is not consider. c) Cash flow statement is a detailed analysis revealing inflows and outflows of cash having taken place during a past period. The purpose of cash flow statement is to indicate how the cash position of the firm has under gone change form beginning the period up to the end of the period. Thus to analyze the actual movement of cash, it's very necessary to convert the accrual based income to cash basis net income.
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