[pia ach]

So the rule i read is add all increases to current assets and decreases to current liabilities, subtract all decreases to current assets and increases to current liabilities. However the below question has just the opposite answer. can someone help me out please!

Young & Jamison’s modified cash-basis financial statements indicate cash paid for operating expenses of $150,000, end-of-year prepaid expenses of $15,000, and accrued liabilities of $25,000. At the beginning of the year, Young & Jamison had prepaid expenses of $10,000, while accrued liabilities were $5,000. If cash paid for operating expenses is converted to accrual-basis operating expenses, what would be the amount of operating expenses?

Finally done!!! Experience-pending. Ethics- Pending.
Reg 78 / 73/82.
Aud 74/89.
BEC 72 /78.
FAR 74/ 73/ 82.

[jrosen92770]

Pia – I had the same issue with the exact same question. If I am not mistaken, the rule applies to net income questions, not total expenses.

So the rule in this case is:

Total Cash Basis Expenses

– Increase Current Assets (Prepaid you paid for that expensed under cash basis)

+ Increases Accrued Liabilities (Liabilities you incurred that were not paid for, but are includible under the accrual basis)

Total Accrued Basis Expenses

The answer is $165k.

BEC - 5/26/2013 75
REG - 8/31/2013 82
AUD - 11/24/2013 74, 2/9/2014 92
FAR - 5/25/2014 85

NY CPA

[jrosen92770]

Pia – I had the same issue with the exact same question. If I am not mistaken, the rule applies to net income questions, not total expenses.

So the rule in this case is:

Total Cash Basis Expenses

– Increase Current Assets (Prepaid you paid for that expensed under cash basis)

+ Increases Accrued Liabilities (Liabilities you incurred that were not paid for, but are includible under the accrual basis)

Total Accrued Basis Expenses

The answer is $165k.

BEC - 5/26/2013 75
REG - 8/31/2013 82
AUD - 11/24/2013 74, 2/9/2014 92
FAR - 5/25/2014 85

NY CPA

[Anonymous]

The rules you're talking about are for going from accrual to cash. This question is going from cash to accrual though. So when you see it that way, just reverse all the accrual to cash rules.

[Anonymous]

The rules you're talking about are for going from accrual to cash. This question is going from cash to accrual though. So when you see it that way, just reverse all the accrual to cash rules.

[MustPass1988]

No, that's the right rule for cash to accrual- I just did these questions yesterday but it does apply to net income, not expenses that's why it's not working for this particular question. There's a net difference of 5000 for prepaid expenses but under the accrual method you wouldn't account for this until the obligation is met, so you would back it out of operating expenses.. You would add back the 20,000 difference of accrued liabilities to total $165,000

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[MustPass1988]

No, that's the right rule for cash to accrual- I just did these questions yesterday but it does apply to net income, not expenses that's why it's not working for this particular question. There's a net difference of 5000 for prepaid expenses but under the accrual method you wouldn't account for this until the obligation is met, so you would back it out of operating expenses.. You would add back the 20,000 difference of accrued liabilities to total $165,000

AUD: PASSED [81]; Expired, retaking August 23rd
BEC: PASSED [83]; Expired, retaking July 11th
REG: PASSED [83]
FAR: FAILED [64]; Retaking May 23rd

[Jason]

I have a question kind of unrelated to this thread. Why are all the questions/responses always duplicated? Serious question…not trying to be rude. I see this in all the threads on this site. Thanks in advance for responding.
-Jason

- Jason

[Anonymous]

when converting from cash to accrual for EXPENSES-you have to add accruals (they weren't paid in cash) and deduct prepaids-they were paid in cash but aren't being considered expenses yet.

[Author]

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