[Anonymous]

Hi there,

I have been starring at FAR for 2 days straight and can’t seem to think straight any more. Could anyone please explain to me why the J/E approach fails to yield the desired results (or what am I doing wrong) for the question below…

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Co’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?

Answer is $165,000.

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I’m trying to plug it into J/E but failing miserably as I see 135 as result:

Dr Op Expense 150

Dr Prepaid Exp 5

Cr Accrued Liab 20

Cr Income 135

[shinallsm]

Honestly, I've set mine up as kind of a mnemonic, but it a strange way. I don't know if you have played old school mortal combat when you have to do up downs up down and a b x , etc etc you get the point anyways. Here it is, it's worked for everything I've done so far.

Liability ▲ —

Liability ▼ +

Asset ▲ +

Asset ▼ —

So for instance if they are on cash and going to accrual, if the liability ▲ (increases) then I subtract that for the accrual method. If the Asset ▲ (increases) then I add that for the accrual method.

Essentially, I just remember Liability x2, Assets x2 then up down for both, then i create the out side box with — and the inside options are +.

Not sure if that helps, but its the way my brain works.

REG - 90 - 10/31/14
FAR - 77 - 1/3/15
AUD - 89 - 4/1/15
BEC - ?? - 5/27/15

[shinallsm]

Honestly, I've set mine up as kind of a mnemonic, but it a strange way. I don't know if you have played old school mortal combat when you have to do up downs up down and a b x , etc etc you get the point anyways. Here it is, it's worked for everything I've done so far.

Liability ▲ —

Liability ▼ +

Asset ▲ +

Asset ▼ —

So for instance if they are on cash and going to accrual, if the liability ▲ (increases) then I subtract that for the accrual method. If the Asset ▲ (increases) then I add that for the accrual method.

Essentially, I just remember Liability x2, Assets x2 then up down for both, then i create the out side box with — and the inside options are +.

Not sure if that helps, but its the way my brain works.

REG - 90 - 10/31/14
FAR - 77 - 1/3/15
AUD - 89 - 4/1/15
BEC - ?? - 5/27/15

[shinallsm]

Honestly, I've set mine up as kind of a mnemonic, but it a strange way. I don't know if you have played old school mortal combat when you have to do up downs up down and a b x , etc etc you get the point anyways. Here it is, it's worked for everything I've done so far.

Liability ▲ —

Liability ▼ +

Asset ▲ +

Asset ▼ —

So for instance if they are on cash and going to accrual, if the liability ▲ (increases) then I subtract that for the accrual method. If the Asset ▲ (increases) then I add that for the accrual method.

Essentially, I just remember Liability x2, Assets x2 then up down for both, then i create the out side box with — and the inside options are +.

Not sure if that helps, but its the way my brain works.

REG - 90 - 10/31/14
FAR - 77 - 1/3/15
AUD - 89 - 4/1/15
BEC - ?? - 5/27/15

[Author]

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