Recognition of Revenues and Unadjusted Trial Balance

This document discusses the difference between cash accounting and accrual accounting, focusing on the recognition of revenues. It also provides an example of companies operating on accrual or cash accounting basis. Additionally, it explains the concept of unadjusted trial balance.

ACCOUNT

TABLE OF CONTENTS
REPORT..........................................................................................................................................1
1. Recognition of Revenues.........................................................................................................1
2. Unadjusted Trial Balance ........................................................................................................1
3. Example of companies operating over accrual or cash accounting basis................................3
REFERENCES................................................................................................................................5

REPORT
1. Recognition of Revenues
Difference between cash accounting and accrual accounting
Both the accounting methods are used for recording the business transactions. Main
difference between the accounting methods is of timing transactions being recorded. Results of
accounting methods give same results over time.
In accrual basis of accounting revenues and transactions are recorded as and when they
are earned where expenses are recorded in the records when they are made.
In cash accounting revenues and transactions are recorded on receipt of cash from the
customers. Expenses of the business are recorded at the time cash is paid to the employees and
suppliers.
Example of cash accounting and accrual accounting.
Expense Recognition
Company X buys supplies of office in march and make payment in April. In cash
accounting purchase is recognised when the bill is paid by company in April (Eulner &
Waldbauer, (2018). On the other in accrual accounting company will recognise purchases in
march when invoice from suppliers is received.
Revenue Recognition
Company X sold product in August to a customer. Invoice is paid by the customer in
September. On cash method it recognises sales in September on receipt of cash. On the other in
accrual accounting sales is recognised in August when the invoice is issued.
Direct experience
At the time of working as accounting assistant company was following accrual basis of
accounting. It received a big order for particular type of product which was to be completed
within six months. Following accrual basis it recorded the revenues in books reflecting high
profitable state. After few days order was cancelled and this made the company to de-recognised
the revenues recorded. Cash accounting proves to be beneficial as it records the transactions
when the revenue are actually earned in such situations.
2. Unadjusted Trial Balance
TRIAL BALANCE
S.No. Account Heads Element Debit Credit
1

1 CASH Asset 160915
2 BANK o/d Liability 26292.2
3 A/c Receivable Asset 52272
4 A/c Payable Liability 119196
5 PURCHASES Expense 107316
6 SALES Income 145552
7 Office Supplies Asset 900
8 Equipment Asset 10800
9 Accu Depri Liability 9400
10 Couch City Asset 5544
11 Table Tops Asset 17820
12 Drawings Expense 1440
13 GST Paid Expense 6300
14
Nordin Office
Furniture Liability 28710
15
Furniture
Warehouse Asset 3366
16 Beautiful Homes ltd Asset 12078
17 Inventory 20300
17 Walden & Co Liability 114454
18 D. Landell Liability 6732
19 Ruby Sales Asset 4950
20 Sales Salaries Expense 7740
21 Office Salaries Expense 4680
22 Bad Debts Expense 1584
23 Prepaid insurance Asset 3240
24 Warehouse Asset 117504
25 GST Collected Liability 15795
26 P. Greta Capital Capital 111773.8
27 Insurance Expense 360
28
Accrued
Commission Asset 39600
29 Depreciation Expense 5196
30 Accrued Interest Liability 6000
TOTAL 583905 583905
Adjusted Trial Balance
TRIAL BALANCE
S.No. Account Heads Element Debit Credit
1 CASH Asset 160915
2 BANK o/d Liability 26292.2
3 A/c Receivable Asset 52272
4 A/c Payable Liability 119196
2

5 PURCHASES Expense 107316
6 SALES Income 144152
7 Office Supplies Asset 900
8 Equipment Asset 10800
9 Accu Depri Liability 9400
10 Couch City Asset 5544
11 Table Tops Asset 17820
12 Drawings Expense 1440
13 GST Paid Expense 6300
14
Nordin Office
Furniture Liability 28710
15
Furniture
Warehouse Asset 3366
16 Beautiful Homes ltd Asset 12078
17 Inventory 20000
17 Walden & Co Liability 114454
18 D. Landell Liability 6732
19 Ruby Sales Asset 4950
20 Sales Salaries Expense 7740
21 Office Salaries Expense 4680
22 Bad Debts Expense 1584
23 Prepaid insurance Asset 3240
24 Warehouse Asset 117504
25 GST Collected Liability 15795
26 P. Greta Capital Capital 111773.8
27 Insurance Expense 360
28
Accrued
Commission Asset 39600
29 Depreciation Expense 5196
30 Accrued Interest Liability 6000
31 Unbilled fees 1400
32 Depreciation 200
33 Cleaning supplies 300
34 Outstanding salaries 500
TOTAL 584105 584105
3. Example of companies operating over accrual or cash accounting basis
It could be seen that both the accounting methods are used by the organisations for
recording their business transactions. Difference between the accounting methods is only of
timing and not of other things. As per the accounting standards accrual basis of accounting is
followed by organisation (Labrador & Olmo, (2019). There is a company nearby named Post
Italiane which postal service provider. Company maintains records of all the transactions that are
3

carried out during the year. It is having revenues of 10.86 euros. The company follows accrual
basis of accounting to record the transactions carried out during the year.
It records all the transactions as and when they are occurred. In the case of revenues they
are recorded when the invoice is raised and not when cash is received. Similarly in the case of
expenses they are recognises by company when the expenses related with the services or
business operations are incurred and not when payment is made. The accounting method also
provides company to record the probable loss that might occur in future.
It could be identified that company follows accrual basis of accounting as company
makes provision for the future contingencies and liabilities from the financial statements
prepared by company every year (Costa & Cimò, (2018). It also accounts for the prepaid and
outstanding expenses in the statements which is shown only under accrual accounting method.
Therefore, it could be said that Post Italiane follows accrual basis of accounting.
4

REFERENCES
Books and Journals
Eulner, V. & Waldbauer, G., (2018). New development: Cash versus accrual accounting for the
public sector—EPSAS. Public Money & Management.pp.1-4.
Labrador, M. & Olmo, J., (2019). Management accounting innovations for rationalizing the cost
of services: The reassessment of cash and accrual accounting. Public Money &
Management.39(6). pp.401-408.
Costa, M. & Cimò, F., (2018). From Cash to Accrual Accounting: The seminal case of the
Sicilian Regional Public Bodies. d/Seas Working Papers-ISSN 2611-0172.2(1).
5