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Explain the difference between cash and accrual accounting

1 Effortless Transport is a business that retails electric bikes, scooters and hoverboards. The Statement of Financial Position as at 30th June 2016 is given below. Transactions for the month of July 2016 are also given. Required: a)Record the transactions for July 2016 in a spreadsheet. Remember to add columns as necessary for additional assets, liabilities, owner’s equity, revenue and expense accounts that may be necessary. b)Prepare an Income statement (Statement of Financial Performance) for the month ending 31 July 2016. c)Prepare a Classified Balance Sheet (Statement of Financial Position) in the vertical format, as at 31 July 2016. Question 2 Briefly explain the three methods of depreciation discussed in the textbook, pages 90 – 94. Briefly explain the impact the use of these different methods has on profit. On what basis should an organisation select the depreciation method to use for a non-current asset? Question 3 Explain the difference between cash and accrual accounting. Calculate the revenues and expenses that Effortless Transport would recognise under a cash accounting system in July 2016. Compare the profit (or loss) calculated under cash accounting to the profit (or loss) calculated under accrual accounting in Question 1.

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