Been having trouble with cash to accrual but something just clicked (i hope) and i want to see if this is a safe assumption. Can you assume that you add all Dr. and subtract all credits? Here is an example:
Its cash-basis net income for the year is $70,000
Beginning of Year End of Year
Accounts payable $ 3,000 $ 1,000
Unearned revenue 300 500
Wages payable 300 400
Prepaid rent 1,200 1,500
Accounts receivable 1,400 600
What amount should the company report as its accrual-based net income for the current year?
So start with 70,000
To take AP from 3,000 to 1,000 you would Dr. AP 2,000 – so add 2,000
Unearned rev, a liab, would take a Cr. of 200 to get to the ending balanc – so subtract 200
wages payable, a liab, would also be a Cr. of 100 to get the total to 400 – so subtract 100
Prepaid rent, an asset, would take a Dr. of 300 to get it to its ending balance – so add 300
AR, an asset, would take a credit of 800 to get it to ending balance – so subtract 800
then you have 70,000 +2000 – 200-100+300-800 = 71,200
Is this always how it works? it seems so easy now, but I had trouble with it for the longest time.
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