BUS FPX 2061 Assessment 3 Completing the Accounting Cycle

WRITE MY ESSAY FOR ME

BUS FPX 2061 Assessment 3 Completing the Accounting Cycle

Buy ready-to-submit essays. No Plagiarism Guarantee

Note: All our papers are written by real people, not generated by AI.

Name

Capella university

BUS-FPX2061 Accounting Fundamentals

Prof. Name

Date

Assessment 3: Completing the Accounting Cycle

1. Reporting Revenues and Expenses

How are revenues and expenses reported on the income statement under the cash basis of accounting? How are they reported on the accrual basis of accounting? What are the key differences between these two methods? In what situations would you use one of these approaches versus the other?

Under the cash basis of accounting, revenues are recorded when cash is received, and expenses are recorded when payments are made. This approach focuses solely on cash flow and does not account for credit transactions or unpaid expenses.

In contrast, under the accrual basis of accounting, revenues are recognized when sales are made or services are performed, regardless of when payment is received. Expenses are recognized when they are incurred, not when they are paid.

The primary difference between the two lies in timing. Cash basis reflects real-time cash movements, while accrual basis reflects the economic activities of the business. Although the cash basis is simpler, it is not considered theoretically sound under Generally Accepted Accounting Principles (GAAP). It is typically used by small businesses or individuals. The accrual basis, on the other hand, is the accepted and standard accounting method used by most organizations.

Comparison of Accounting Methods	Cash Basis	Accrual Basis
Revenue Recognition	When cash is received	When earned (sale/service)
Expense Recognition	When paid	When incurred
Complexity	Simple	More complex
Common Users	Small businesses, individuals	Most companies
GAAP Acceptance	Not accepted	Accepted

2. Recording Normal and Adjusting Entries

Which events during an accounting period trigger the recording of normal journal entries? Which event triggers the making of adjusting entries? Please explain why adjusting entries are necessary at the end of an accounting period. What ethical considerations are there when making adjusting entries?

Normal journal entries are triggered by routine business transactions such as sales, purchases, or bill payments. Adjusting entries are made at the end of the accounting period to ensure revenues and expenses are properly matched within that period.

Adjusting entries help align recorded figures with actual financial activity. They ensure that expenses incurred to generate revenue are deducted from the same revenue they helped produce, thereby supporting the matching principle.

From an ethical standpoint, accountants must ensure all adjusting entries are accurate and transparent. Manipulating these entries to distort earnings or financial positions would be considered unethical. Integrity and accuracy are essential for maintaining stakeholder trust.

3. Examples of Adjusting Journal Entries

Give an example of an adjusting journal entry for each of the following transactions:

Type of Adjustment	Example Description	Journal Entry
Equal growth of an expense and a liability	The last pay date is before period-end. Accrued payroll for the final days must be recorded.	Debit: Payroll ExpenseCredit: Salaries Payable
Earning of revenue previously recorded as unearned	A customer prepays for a service not yet rendered. The portion now earned must be recognized.	Debit: Unearned RevenueCredit: Service Revenue
Equal growth of an asset and revenue	A company sells products on credit.	Debit: Accounts ReceivableCredit: Revenue
Increase in an expense and decrease in an asset	Adjusting prepaid insurance to reflect the expired portion.	Debit: Insurance ExpenseCredit: Prepaid Insurance

These entries ensure that financial statements reflect accurate values for both revenues and expenses during the reporting period.

4. Book Value and Depreciation

The balance in the equipment account is $4,689,000, and the balance in the accumulated depreciation equipment account is $949,000. What is the book value of the equipment and does that amount mean that the equipment has a loss in real value of $949,000? Explain your response.

The book value of the equipment is calculated as:

$4,689,000 – $949,000 = $3,740,000.

The accumulated depreciation of $949,000 does not necessarily indicate a real or market value loss. It simply reflects the systematic allocation of the asset’s cost over its useful life. The depreciation process is based on accounting estimates rather than actual physical wear or market decline. Factors such as the estimated useful life and residual value determine the depreciation rate applied.

5. Extending Account Balances

After the Adjusted Trial Balance columns of a worksheet have been totaled, which account balances are extended to the Income Statement columns, the Statement of Retained Earnings columns, and the Balance Sheet columns?

The Income Statement includes all revenue and expense accounts from the Adjusted Trial Balance to determine net income for the period. The Statement of Retained Earnings extends the Retained Earnings and Dividends accounts to show shareholder value changes. Lastly, the Balance Sheet presents asset, liability, and capital stock accounts, illustrating the company’s overall financial position.

Financial Statement	Accounts Extended	Purpose
Income Statement	Revenue and Expense Accounts	To determine net income or loss
Statement of Retained Earnings	Retained Earnings and Dividends	To show changes in equity
Balance Sheet	Assets, Liabilities, and Capital Stock	To present financial position

6. Current Ratio and Financial Trend Analysis

Current assets and current liabilities for a company are:

• Current assets: 2020—$387,000; 2021—$435,000.
• Current liabilities: 2020—$275,000; 2021—$297,500.

Determine the current ratio for 2020 and 2021. Does the change in the current ratio indicate a favorable or unfavorable trend?

Year	Current Assets ($)	Current Liabilities ($)	Current Ratio (Assets ÷ Liabilities)
2020	387,000	275,000	1.41:1
2021	435,000	297,500	1.46:1

The current ratio improved from 1.41 to 1.46, suggesting a favorable liquidity trend. Assets increased by approximately 12%, while liabilities rose by 8%. This indicates that the company’s ability to cover short-term obligations strengthened slightly. However, part of this asset growth may be linked to increased liabilities, warranting careful monitoring.

7. Correct Sequence of the Accounting Cycle

Rearrange the following steps in the accounting cycle in proper order.

Step	Accounting Activity
1	Transactions are analyzed and recorded in the general journal.
2	Transactions are posted to the ledger.
3	An unadjusted trial balance is prepared.
4	An optional end-of-period worksheet is prepared.
5	Financial statements are prepared.
6	Adjustment data are assembled and analyzed.
7	Adjusting entries are journalized.
8	An adjusted trial balance is prepared.
9	Closing entries are journalized and posted to the ledger.
10	A post-closing trial balance is prepared.

This sequence ensures a logical flow of accounting activities from initial transaction analysis to the preparation of financial statements and closing of books for the next period.

References

Horngren, C. T., Harrison, W. T., & Oliver, M. S. (2018). Accounting (11th ed.). Pearson Education.

Wild, J. J., Shaw, K. W., & Chiappetta, B. (2021). Fundamental Accounting Principles (26th ed.). McGraw-Hill Education.

BUS FPX 2061 Assessment 3 Completing the Accounting Cycle

Weygandt, J. J., Kimmel, P. D., & Kieso, D. E. (2020). Financial Accounting (11th ed.). Wiley.

The post BUS FPX 2061 Assessment 3 Completing the Accounting Cycle appeared first on NURSFPX.com.

WRITE MY ESSAY FOR ME