Accounting for Accruals and Deferrals

Indicate how each event affects the elements of financial statements. Use the following letters to record your answer in the box shown below each element. You do not need to enter amounts. 1. Banks Co. performed $5,000 of services for customers on account. Answer: (I) (N) (I) (I) (N) (I) (N) Learning Objective: 02-01 Topic Area: Accounting for accounts receivable AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Level of Difficulty: 1 Easy Feedback: Performing services on account increases assets (accounts receivable) and increases revenue, which increases net income and equity (retained earnings). It does not affect the statement of cash flows, as it does not affect cash. 2. Todd Co. collected $2,000 cash from accounts receivable. Answer: (N) (N) (N) (N) (N) (N) (I) Learning Objective: 02-01 Topic Area: Accounting for accounts receivable AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Level of Difficulty: 1 Easy Feedback: Collecting on accounts receivable increases one asset (cash) and decreases another asset (accounts receivable). It does not affect the income statement, but is reported as a cash inflow for operating activities on the statement of cash flows. 3. Ingstrom Co. provided $2,600 of services for a customer who paid $1,000 cash immediately and promised to pay an additional $1,600 one month later. Answer: (I) (N) (I) (I) (N) (I) (I) Learning Objective: 02-01 Topic Area: Accounting for accounts receivable AACSB: Analytical Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Analyze Level of Difficulty: 2 Medium Feedback: This event increases revenue, net income and equity (retained earnings) by $2,600. Cash increases by $1,000 and accounts receivable increases by $1,600, which result in an increase in assets of $2,600. It is reported as a $1,000 cash inflow for operating activities on the statement of cash flows. 4. Amity Co. signed contracts for $25,000 of services to be performed in the future. Answer: (N) (N) (N) (N) (N) (N) (N) Learning Objective: 02-01 Topic Area: Accounting for accounts receivable AACSB: Reflective Thinking AICPA: BB Critical Thinking AICPA: FN Measurement Blooms: Understand Level of Difficulty: 3 Hard Feedback: This event does not affect the financial statements at all. Revenue is recorded when services are performed, not when the contract is signed.