Chapter 4, Problem 4.2BYP

(a)

To determine

Accrual basis of accounting:

In accrual Basis of accounting, the company records all the transaction that brings changes in the financial statement of the company. In accrual basis of accounting, the revenue is recognized for the accounting period, in which the goods are sold, or the service performed even if cash is not exchanged. Similarly the expenses are recognized for the accounting period, in which the business incurred expenses even if cash is not exchanged.

To identify: The accounts of Company H, which provide evidence that Company H uses accrual accounting.

Following are two accounts found in the balance sheet of Company H that would provide evidence that the company uses accrual accounting:

Sl. No	Balance sheet
1	Prepaid expenses
2	Income tax payable

Table (1)

To identify: The income statement account of Company H, which would be affected by the adjustments process.

(b)

To determine

To identify: The accounts of Company TR, which provide evidence that Company TR uses accrual accounting.