Accrual Adjustments - Matching Revenue to Expense
Accrual Balance Sheet Accrual Balance Sheet Accrual Balance Sheet Accrual Balance Sheet
Accrual Balance Sheet
12/31/02 12/31/03 12/31/04 12/31/05 12/31/06
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
O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M
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
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 and
expense.
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 make
accrual 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 2003 Cash Expense 2004 Cash Expense 2005 Cash Expense 2006
Cash Income 2003 Cash Income 2004 Cash Income 2005 Cash Income 2006
