Asked by DANTE ANDERSON on May 09, 2024
Verified
T-account analysis can be used to gain insights into why accrual basis earnings and cash basis earnings differ and to
A) journalize future transactions.
B) reconstruct transactions that have occurred during a given reporting period.
C) post transactions that have occurred during a given reporting period.
D) determine the current market price of common stock.
Accrual Basis
An accounting method where revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is actually received or paid.
Cash Basis
A method of accounting where revenue and expenses are recognized only when cash is received or paid, respectively.
T-account
A visual representation used in accounting to depict the debit and credit sides of accounts, helping in the preparation and understanding of double-entry accounting systems.
- Understand the distinction and applications of accrual and cash basis accounting.
- Practice journalizing and posting transactions in T-accounts.
Verified Answer
FL
Fareeza LokmanMay 12, 2024
Final Answer :
B
Explanation :
T-account analysis is a tool that helps to reconstruct and understand the transactions that have occurred during a specific reporting period. By comparing the accrual basis earnings and cash basis earnings, one can determine the timing differences between when revenue is recognized and when cash is received, as well as when expenses are recognized and when cash is paid out. This information can help to identify areas where a company may be managing earnings through accounting manipulation or where cash flow issues may arise in the future. Therefore, option B is the best choice. The other options are not related to T-account analysis.
Learning Objectives
- Understand the distinction and applications of accrual and cash basis accounting.
- Practice journalizing and posting transactions in T-accounts.