Accounting: Generally Accepted Accounting Principles and Accrual Accounting Essay example

Submitted By 15nicsco
Words: 294
Pages: 2

The reason why the net profit figures differ due to the fact that in the cash accounting system no balance day adjustments have been taken into consideration. The net profit figure of $54500 (task 2) is the accurate figure for this accounting period. This has resulted because under the accrual accounting system the following balance day adjustment were preformed: credit sales of $5000 need to be included as sales for the financial year because the accrual system recognises the delivery of goods or service have taken place. Therefore sales revenue should be $55000 not $50000 as stated in task 1.
The rent revenue figure of $1000 has to include $1000 owing from last month. Even though the cash has not been received, under the accrual system revenue is recognised when it has been earned therefore the rent owing must be included in the statement of financial performance. Therefore rent revenue should be $2000 instead of $1000 as stated in task one The advertising figure of $1000 should include the $500 that is owing and belongs to this accounting period. The rent expense figure of $2000 includes $1000 has been paid for the next accounting period and therefore should not be included in the statement of financial performance. This is because under the accrual accounting, systems expenses are recognised when they have been incurred, regardless of when they are payed . therefore the rent expense should be $1500 instead of $1000 as stated in task 1.
Accrual accounting is the…