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Okay I know most of you are thinking that I am a moron….and I may be….but something that keeps stumping me is that there seems to be two different calculations in becker to get from cash to accrual and I can’t see why.
Example:
Cash received during the year
– beginning balance in AR because those were earned last year
+ ending balance in AR because those were earned this year
= accrual based revenue
Well then there are some multiple choice questions that require you to do a plug number.
Example using BASE acronym Beginning, Add, Subtract, Equals
B beginning rent receivable
A PLUG FOR BILLINGS ACCRUED
S <cash collections and write offs>
E equals ending rent receivable
The plug number is the answer for accrual revenue during the year. I have no idea when to use which one.
I will do a mathematical example (did not come from becker, I made it up)
FACTS:
Company reported rental revenue on its cash basis tax return for year = 700
Rent receivable at end of year 1 = 100
Rent receivable at end of year 2 = 200
Uncollectible rents written off during the fiscal year = 20
QUESTION: Under the accrual basis _______should report rental revenue of what?
this is the way I would think that one would solve the problem:
cash basis revenue 700
– rent receivable beginning <100>
+ rent receivable ending 200
– uncollectible written off < 20>
= accrual basis rental revenue for the year of 780
But this is how Becker is telling me to solve the problem
beginning of year rent receivable 100
+billings accrued X PLUG
– cash collections and writeoffs (700+20) 720
= ending receivable 200
so 100 + X – 720 = 200
100 + X = 920
X = 820
ANY HELP WOULD BE APPRECIATED! THANK YOU!
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