ACC R U A L A C C O U N T I N G – W O R K S H E E T 1
Topic: Accrual vs. Cash Basis & the Matching Principle
Audience: Early–Intermediate (VET/Uni/CPA Foundation). Standards context: IFRS/AASB
(conceptual, non-jurisdictional).
LEARNING OBJECTIVES
1) Distinguish accrual accounting from cash basis accounting.
2) Apply the matching/expense recognition principle to typical business events.
3) Analyse the financial-statement impact of accruals and deferrals (assets,
liabilities, equity, profit).
QUICK REFERENCE (for this worksheet)
• Accrual basis: recognise revenues when performance obligations are satisfied
(AASB 15/IFRS 15), and expenses when incurred (matching), regardless of cash.
• Deferral: cash first, revenue/expense later (e.g., unearned revenue; prepaid
expense).
• Accrual: revenue/expense first, cash later (e.g., accrued revenue; accrued
wages).
• Common accounts: Accounts Receivable (asset), Unearned Revenue/Contract Liability
(liability), Prepaid (asset), Accrued Expenses Payable (liability).
SECTION A – CONCEPT CHECK (Circle or mark the best choice. Briefly justify.)
A1. Customer pays you $6,000 on 1 July for a 12-month service plan that begins
immediately. By 31 Aug, two months of service are delivered. What are the
appropriate balances on 31 Aug?
a) Revenue $6,000; Unearned $0
b) Revenue $1,000; Unearned $5,000
c) Revenue $2,000; Unearned $4,000
d) Cash basis would show revenue $6,000; accrual would show revenue $1,000 or
$2,000 depending on month length
A2. On 28 Sep you receive an electricity bill for $1,450 covering Sep usage,
payable 15 Oct. Choose the accrual entry on 30 Sep:
a) Dr Electricity Expense 1,450; Cr Accounts Payable 1,450
b) Dr Electricity Expense 0; Cr Accounts Payable 0 (wait for cash)
c) Dr Prepaid Expense 1,450; Cr Cash 1,450
d) Dr Utilities Payable; Cr Cash
A3. A $12,000 insurance policy paid 1 Jan covers 12 months evenly. On 31 Mar
(quarter-end) the adjusting entry is:
a) Dr Insurance Expense 3,000; Cr Prepaid Insurance 3,000
b) Dr Prepaid Insurance 3,000; Cr Insurance Expense 3,000
c) Dr Insurance Expense 12,000; Cr Cash 12,000
d) No entry
SECTION B – CLASSIFY EACH EVENT
For each, write “Accrual” or “Deferral”, and the account type affected
(Asset/Liability/Equity/Revenue/Expense). Then write the journal entry.
B1. Received $4,800 cash on 1 April for 6 months of lessons beginning 1 May.
B2. On 30 June, employees earned $9,200 of wages to be paid on 7 July.
B3. Performed consulting services worth $3,600 on credit on 25 August; collect cash
on 15 September.
B4. Paid $2,400 on 1 Nov for a 12-month software subscription starting 1 Nov.
(Provide: debit/credit accounts, amounts, and date.)
SECTION C – MINI-SCENARIO (Cash Basis vs Accrual Basis)
C1. Lakeview Tutors (monthly periods) has the following for September:
• Sep 1: Received $9,000 cash for services to be delivered evenly Sep–Nov.
• Sep 10: Completed $6,500 of ad-hoc sessions on credit.
• Sep 18: Collected $4,000 from customers for prior credit sales (from August).
• Sep 25: Paid $1,200 cash for September rent.
• Sep 30: Paid staff wages of $3,900 (all relate to September).
Required (show workings):
a) Under CASH basis, compute September Revenue and Expense (rent + wages only)
and Profit.
b) Under ACCRUAL basis, compute September Revenue and Expense (rent + wages) and
Profit.
c) For accruals/deferrals, provide 30 Sep adjusting entries.
d) Briefly explain how unearned revenue affects reported profit in September.
SECTION D – FINANCIAL-STATEMENT EFFECTS (FSE) TABLE
For each independent adjustment, mark ↑, ↓, or 0 for: Assets (A), Liabilities (L),
Equity (E), Revenue (R), Expense (X), Profit (P).
D1. Recognise one month of revenue from a 5-month $5,000 contract that was billed &
collected in advance.
D2. Accrue interest expense $750 on a bank loan (no cash yet).
D3. Record bad-debt expense $1,200 with allowance method.
D4. Depreciate equipment $2,100 for the month.
Template (copy for each case):
Case: _______
A: __ L: __ E: __ R: __ X: __ P: __ (Brief note:
______________________________)
SECTION E – SHORT RESPONSE
E1. In one paragraph, contrast matching vs. cash payments timing. Provide one
example where a deferral improves decision usefulness of profit.
DELIVERABLES
• Journal entries with dates; explanations.
• Brief computations where relevant.
• Completed FSE table and short responses.
END OF WORKSHEET 1
