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The concept of accrual accounting, focusing on the importance of matching revenue to expenses and making adjustments to ensure accurate balance sheet reporting. It uses examples of crop sales and expenses to illustrate the process, highlighting the difference between cash and accrual accounting methods and the significance of accrual adjustments.
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Accrual Balance Sheet
Accrual Balance Sheet
Accrual Balance Sheet
Accrual Balance Sheet
Accrual Balance Sheet
04 wht crop
04 wht crop sold
03 Wheat crop
03 Wht Crop sold
earned
revenue earned
05 wht crop earned
05 wht crop sold
04 calf crop earned
05 calf crop earned
’05 calf crop sold
Crop sold
05 Fuel expense paid
05 Fuel expense
04 Seed expense paid
incurred
04 Seed expense incurred
06 Seed expense paid
06 Seed expense incurred
03 Expense paid 03 Repair Expense incurred Cash Expense 2003 In the graphic above the curved, dotted lines show the mis-match between when a revenue is earned and when it is recorded on a cash basis.These curved lines represent those things that would be adjusted from cash basis to accrual. Notice that this happens with both income andexpense.The dark vertical lines show the transition from one year to the next, and represent a balance sheet. So each of the things we must makeaccrual adjustments for pass over the balance sheet, and should appear on the balance sheet as either an asset or liability.For example, a repair that was incurred in September of ’03 but not paid unitl June ’04 should be seen on a balance sheet as an account payable.Also, a crop that was harvested but not sold until the following year will be seen on the balance sheet as crop inventory.
Cash Expense 2004
Cash Expense 2005
Cash Expense 2006
Cash Income 2003
Cash Income 2004
Cash Income 2005
Cash Income 2006