QuestionDevryACCT 212 (Financial Accounting)Week 2Week 2: The Accounting System and Accrual Accounting – Discussion 1

09 May QuestionDevryACCT 212 (Financial Accounting)Week 2Week 2: The Accounting System and Accrual Accounting – Discussion 1

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Question

DevryACCT 212 (Financial Accounting)

Week 2

Week 2: The Accounting System and Accrual Accounting – Discussion 1

Prepaid Expenses vs. Unearned Revenue (graded)

From this week’s reading, you were introduced to the concept of unearned revenue and prepaid expenses. Imagine that you are CFO of a company that manufacturers picture frames. Your company wants to become more vertically integrated, meaning it no longer wants to purchase the products that go into the frame, but rather manufacture them. To do this, your company has decided to acquire a glass manufacturing company. There are two glass manufacturers that your company is deciding between: Glass R’ US and Glass Team. In reviewing the balance sheet of each company, you noticed the following:

a. Glass R’ US has a large amount of Unearned Revenue and no Prepaid Expenses.

b. Glass Team has a large amount of Prepaid Expenses and no Unearned Revenue

In your discussion post, explain what unearned revenue and prepaid expenses represent. Then, basing your decision solely on the amount of unearned revenue and prepaid expenses each company has, tell us which company you would acquire and why? (In answering “why”, be sure to include why you believe that company’s position is superior. For example, “I believe having a large amount of prepaid expenses is a better position because ….”)

Week 2: The Accounting System and Accrual Accounting – Discussion 2

Accrual vs. Cash Accounting (graded)

US GAAP dictates that all financial accounting use accrual accounting. This means that if a company must use accrual accounting if they want to state that their financial statements are in accordance with US GAAP. However, some companies, particularly smaller, privately-owned companies, use cash accounting.

What is the difference between accrual and cash accounting? Which accounting method do you prefer and why?

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