I realize this is a late reply to this thread, but after working *many* such problems on FAR and also not understanding the logic behind it for a few years, I came up with my own shortcut method.
Actually, two of them.
Example…this is a variation of an MCQ problem in Roger's FAR that I ran across.
“Debits to operating expenses are 150. Prepaid Expenses increased by 30 and Accrued Expenses increased by 100. How much of the operating expenses were paid with cash?”
Way 1 (harder): Debits to expense = Cash-paid + NET Accrued Expenses. What is Net Accrued Expenses? It's Accrued Expenses less Prepaids. 70, in this case.
150 – 70 = 80.
Way 2 (a complete cinch):
Op Exp 150 – Dr.
Prepaids 30 – Dr.
Accrueds 100 – Cr.
Cash 80 – Cr.
We could change up this problem and make it so that prepaids DECREASED by 30 and accrued exp DECREASED by 100. It would then look like this:
Op Exp 150 – Dr.
Accrueds 100 – Dr.
Prepaids 30 – Cr.
Cash 220 – Cr.
When you get a question like this on the exam, the only way to do it is with a shortcut method. Otherwise, you will waste tons of time messing around with equations. JE method is always the best and easiest. I remember banging my head against the wall with this long ago – the textbook I had for Intermediate Acct. did some long explanation about it that was muddled and then you were supposed to memorize a bunch of pluses and minuses (Beginning Prepaids – Beginning Accrued Exp + Ending Prepaids – Ending Accrued Expenses = Cash, I think it was).
Anyway, I hope my method is helpful. I will add…I got a question somewhat like this on a test I had to take for a job interview this past year. I nailed it immediately thanks to this shortcut and…I got hired.
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