[nshah002]

I am having a very difficult time memorizing and understanding the calculations for Accrual to Cash and Cash to Accrual…

Any tips… please help!

[Peterman25]

I was having some trouble with this too and my boss gave me some advice. Well, his first comment was – “who does cash to accrual??”

He gave me accrual to cash. If you reverse it, it works for cash to accrual.

You take prior year ending numbers and keep the signs the same – accounts with DR balances are positives and CR balances are negatives.

You take current year ending numbers and reverse the signs – DR balances are negatives and CR balances are positives.

Sum all of these numbers with current year net income and you will get cash basis income.

The reverse works with cash to accrual – current year signs are as is and prior year sings are reversed. Sum all the numbers with cash basis income and you will get accrual based net income.

I'm sorry if this confuses you more, but it works and has worked for me on a couple of NINJA MCQ problems.

BEC 7/14 - PASS
FAR 10/14 - PASS
AUD 1/15 - PASS
REG 4/15 - PASS

AZ license - Official 8/20/2015

[taxdiva]

I do and teach others how to do accrual to cash adjustments often. I always simplify it by saying: “Did you receive or pay cash?”

So, if you notice that your A/R account increased from 2000 to 3000 from 2012 to 2013… did you receive any cash for the income reported on your P&L? The journal entry would have been recorded as follows:

A/R

Income

Is there a cash account in that journal entry? No. So I like to remember how to do the adjustment like this…

An increase in A/R would be a debit (asset account), so I need to debit the income statement to adjust for accrual to cash. (Decrease Income)

An decrease in A/R would be a credit, so I need to credit the income statement to adjust for accrual to cash. (Increase income)

A/P is similar. If you have a current increase in A/P, you know that the journal entry was as follows:

Expense XX

A/P XX

Did you pay any cash? Did you credit cash in this transaction? No, so:

An increase in A/P would be a credit, so I need to credit the income statement for an accrual to cash adjustment in A/P (decrease expenses).

A decrease in A/P from year to year would be a debit, so I need to debit the income statement for an accrual to cash adjustment. (increase in expenses)

The amount of the adjustments will always be the difference between beginning balance and ending balance So, like in the example above, if A/R increased from 2000 to 3000. A/R increased 1000… so we'd have an accrual to cash adjustment as a debit to the income statement ($1000 less income to report for tax). You did not receive cash.

Hope that helps!

REG(10/23/12)- Passed. Life happended and lost credit - 18 month expiration)(Retake soon)
FAR - Passed. Used Becker.
AUD - Passed. Used CPAExcel (now Wiley)
BEC- Plan to take October-ish.

Just give me a 75!

[Anonymous]

Here are a couple of links that might help.

I made this one sitting in a doctor's office, so you may find a mistake.

https://docs.google.com/spreadsheets/d/100HES2K3znfffl6giXtZ9pdk6a6R-DNg5CoP2lZVSG0/edit#gid=0

But don't think you are alone in your confusion on this topic.

https://www.another71.com/cpa-exam-forum/topic/attn-mla1169-need-some-more-help-with-this-cash-to-accrual-conversion

[leglock]

excellent explanations

[nshah002]

Yea…thanks everyone! Really appreciate the responses. I will go through a handful of questions and see if i need more assistance.

[Anonymous]

Cash to Accrual Basis

Revenue:

+Sales (Customer Payments)

+AR*

+Prepaid

+Uncollectible Written Off

-Payable**

-Unearned Fees

---

—

Sales Revenue on Accrual Basis

=========================

* + Means

Beginning Balance is –

Ending Balance is +

** – Means

Beginning Balance is +

Ending Balance is –

COGS from Cash Basis:

+Cash Payments

+AP

-Inventory

---

COGS By Accrual Basis

=========================

Note: Compared to the accrual basis of accounting, the cash basis of accounting understates income by the net decrease during the accounting period by:

AR ……….AEP

No ……….Yes

Accrued Salaries Payable:

+AEP, Beginning

+Salaries Expense

-Salaries Paid

---

AEP, End

=================

Accrual Basis ……………………Cash Basis

AR ↑ NI ↑ …………………..AR ↑  NI ↓ 

AP ↑ NI ↓ …………………..AP ↑ NI ↑

[pcm]

I skipped the accrual-cash / cash-accrual section 30 days ago because I wasn't grasping the concept. Today I spent some time and came up with this and have been getting near 100% on my practice exams for this section.

CA
-AR
+AR
-AP
+AP
+Unearned
-Unearned
+Prepaid
-Prepaid
-Accrued
+Accrued

If you move to California (CA) your AR will go down (-AR) and your AP will go down (-AP).
Which means your Unearned will go up (+Unearned) and your Prepaids will go up (+Prepaid)
And your Accrued will go down (-Accrued).

California
-AR
-AP
+Unearned
+Prepaids
-Accrued
then…….
+AR
+AP
-Unearned
-Prepaids
+Accrued

The flip side for Accrual to Cash would be you are moving away from California so simply reverse the above signs.

Hey, this works for me better vs. reading Becker or CPA Excel. I can't grasp their teaching of this but my formula above I understand it better.

GL!

[Anonymous]

You’re right. We understand it better if we write our own analysis of how things are added or deducted from this and that item. I saw my notes from 2014, cut, and pasted it to my word document. I kind of had a refresher course for this topic. Now I understood it better more than ever. Just like the statement of cash flows, your review course will give you pointers and tactics left and right, but it’s up for the students to recreate their own memory tools to understand the entire concept.

[Author]

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