Question

Can you provide me a practice question or an example that I can calculate accrual basis to cash basis? Thank you.

Answer 1

The following formulas represent the conversion of accrual to the cash basis income statement.

The terminology used in the formulas is shown below:

BB – Beginning balance

EB – Ending balance

AR- Accounts receivable

AP – Accounts payable

MI – Merchandise inventory

PE – Prepaid expenses

AE – Accrued expenses

• Sales revenue + BB AR – EB AR = Cash sales

The formula for merchandise inventory payments would look like this:

• Cost of goods sold + EB MI – BB MI + BB AP – EB AP = Cash payments for MI
• Expenses + EB PE – BB PE + BB AE – EB AE = Cash payments for Expenses