The information “Bookings” convey is that: the company record sale of virtual goods as deferred revenue and then recognize the revenue over the estimated average life the purchased virtual goods or as the virtual goods are consumed. The way that Zynaga recognized revenue is based on the estimated life of virtual goods. This is not the same information available in the GAAP-based financial statements. Under GAAP, companies use accrual basis which they recognize revenue when they perform the service. 2) Do you think this is a useful measure?
2. What item costs and revenues are relevant to the decision of how many units of that item to stock? The item costs relevant to the decision of how many units of that item to stock are the liquidation costs if the item has not been demanded. The revenues related to this same decision are the contribution margins of that item if it has been demanded. The two are used in a way that balances these costs and revenues.
SCF-Direct and Indirect Methods SCF-Direct and Indirect Methods A company may use a direct or indirect method to record cash flow and convert net income from accrual to a cash. The Financial Accounting Board allows both presentation methods of cash flows since both are appropriate depending on the company, both methods arrive to the same total amount. The main difference between direct and indirect methods is the way each method arrives to the amount and how it breaks down operating activities. The direct method of cash flow includes more details on operating activities; this method is also used to settle net income and cash from operating expenses. I believe the direct method is a better way for a business to keep track of cash flow because it accounts for every operating activity.
Cash Flows Aleshia Wisch ACC206: Principles of Accounting II Prof. Eric Sumners August 11, 2014 ACC 206 Week Assignment 1. Critical Thinking Question: Answer the following questions: Why are noncash transactions, such as the exchange of common stock for a building for example, included on a statement of cash flows? How are these noncash transactions disclosed? It is important for a company to show what assets they have on hand that can convert to cash. Non cash transactions are disclosed in the footnotes of the financial statement of cash flows.
Accrual Basis vs. Cash Basis Accounting ACC 290 Accrual Basis vs. Cash Basis Accounting Cash basis and accrual basis accounting are two principle accounting methods used for keeping track of the income and expenses related to a business. When using the cash basis method, the income is not recorded until actual cash or payment is received and expenses are also not recorded until they are actually paid for. On the other hand when using the accrual basis method, transactions are recorded as soon as the order is made or services rendered, regardless if payment is actually received at the time. The main difference between these two methods is the timing in which the transactions are debited and credited to accounts (Kimmel, Weygandt, & Kieso, 2009). There are certain criteria to consider when deciding which method of accounting should be used for a business.
Cash Basis and Accrual Basis Cash basis is an accounting method wherein revenues are recognized when cash is received and expenses are recognized when paid. This method is inferior to the accrual basis of accounting where revenues are recognized when they are earned and expenses are matched to revenues or the accounting period when they are incurred, rather than paid. The cash basis of accounting is usually followed by individuals and small companies, but is not in compliance with accounting's matching principle. It does not conform with the provisions of GAAP and is not considered a good management tool because it leaves a time gap between recording the cause of an action, sale or purchase, and its result of payment or receipt of money. It is, however, simpler than the accrual basis accounting and quite suitable for small organizations that transact business mainly in cash, which is also called cash accounting.
Accrual basis accounting records the transaction immediately in a type of account, such as accounts payable, money owed to other companies for services; or accounts receivable “money owed by its debtors” ("Google.com", 2012). Later when the business pays out or is paid; they perform a balance by debiting one account and balancing by credit the corresponding and opposite account. Tracking the relationship between purchase and sale easier, something cash basis accounting fails at. In general, accrual basis accounting is preferred at tax time and for medium to large business. The classic example is expense.
Classified into short-term or long-term facilities Short-term = money Long-term = capital Suppliers of loans or debt funds face credit risk Credit risk: the risk the borrower won’t pay back loan Funds supplied in the form of the acquisition of an ownership share of a business. Longer-term Referred to as capital investment Equity investors face investment risks, but are compensated with dividend payments and capital growth (increase in ownership shares over time) Investment risk: the possibility that the investor’s return will not be realised 1.5 What are some problems with direct financing that make indirect financing more attractive? Direct financing: financing in which DSUs issue financial claims on themselves and sell them for money directly to SSUs. The SSU’s claim is against the DSU, not a financial intermediary. Some problems with direct financing include the denominations of the
Generally accepted accounting principles prescribe the accrual basis of accounting over the cash basis of accounting. The accrual basis of accounting measures the performance of a business by showing in detail every transaction regardless of when the funds are received. Cash basis of accounting only accredits earnings and expenses when money is really being paid out or received. The cash basis of accounting is a less expensive way of keeping records but the failure of using this method is that financing is very difficult because of inaccuracy. The big difference between accrual and cash basis of accounting is when one uses cash basis entries are recorded at the time payment is received.
Accruals are adjustments in regards to revenues and expenses when they are earned or an occurrence have not been recorded within the account. Accrual accounting are recorded at the time the revenue or expense hit even though cash was not paid at the moment the revenue or expense is recorded. Businesses recognize a liability and matching expense for utility costs as of the end of the month, even though the bill hasn't been received. This allows the company to match the business expenses with the revenues that are earned over the same period. This method I believe is more accurate in maintaining financial records at the end of the year and providing a better financial look into how a company is managing.