[TerriSilva]

help! my brain somehow just wants to resist this topic – I can’t keep it straight when to subtract the change or when to add the change to get accrual basis. Anybody have a good way to remember this?

[msquared17]

@terrisilva – are you using Becker? If so, I just came across the explanation to a couple of the mcq's that made it click for me.

[msquared17]

Here is the explanation. I hope it helps:

The increase in accounts receivable will increase cash basis net income. An increase indicates more sales on account occurred during the year than cash collections on sales. These sales on account are not reflected in the cash basis net income number as no cash was received, but do impact accrual basis net income. The decrease in prepaid expenses indicates more expense was incurred during the year than cash payments for prepaids. These incurred expenses are not captured in the cash basis net income number as the cash outflow occurred in the previous year. Therefore, cash basis net income must be reduced by the decrease in prepaids to calculate an accrual basis net income number. Lastly, the decrease in accrued liabilities indicates that more cash was paid this year for previously accrued expenses than expenses accrued this year. The cash basis net income number is too low because it accounts for these cash outflows as expenses.

[Anonymous]

always start with a “zero” scenario. for example, if i earned revenue on a cash basis for prepaid rent revenue, it should not be recognized via accrual basis. so, on an accrual basis, an increase in receivables would be a decrease in when converting from cash to accrual. an increase in prepaid insurance expense (a loss that should not have been recognized in cash basis) would create an increase when converting from cash to accrual.

cash to accrual: assets are opposite, liabilities are same direction.

[TerriSilva]

thank you 🙂

[Anonymous]

I had to use T accounts and talk myself through it for it to finally click. The formulas in Becker didn't work, I really had to think about it and then it worked. For example, if they are going from cash basis to accrual-what happens to your accruals, your prepaids etc. 🙂 Sorry I know this isn't helpful:) LOL!

[Anonymous]

https://imgur.com/edit?deletehash=ZfLjSYIcPIkhdx9&album_id=BYE9p

[TerriSilva]

LOL I had the same problem with Wiley – I did find a video in Ninja I think that will address it so I feel like I'll be ok once I watch it. Robert Monet is the BEST!

[Jen-J]

The way I do it is that I think of it like 2 sets of books – a cash book and an accrual-basis book. If I can answer “How would this series of transactions have been recorded in both sets of books?”and see the JV's in my mind in front of me, it's easier to figure out what the difference is between the two. I never could remember all the rules, but this made sense.

[TerriSilva]

this is really helping right now – it's an answer to a multiple choice in Wiley:

The general rule to convert from cash to accrual is to add decreases in liabilities and increases in assets, and subtract increases in liabilities and decreases in assets.

I've been using this and it's been all good so far 🙂

[Author]

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