Which of the following scenarios would represent differences ...

[stevenposner]

Which of the following scenarios would represent differences between the budgetary basis of accounting and the GAAP basis of accounting?
 
  a. Outstanding encumbrances are considered expenditures.
  b. The General Fund budget comparison schedule is on a cash basis.
  c. Transfers from other funds are reported as revenues.
  d. All of the above.
  e. Items a and b only.

Question 2

Discuss the accounting principle served by crediting amounts received (which will not be earned during the present fiscal period) to an Unearned Revenue account instead of to the Revenue account. Give an example of a business in which this might occur. Explain how failure to make an adjustment to the Unearned Revenue account and the Revenue account would affect the financial statements.

[pami445]

Answer to Question 1

D

Answer to Question 2

The revenue recognition principle records revenue when they are earned. An example of a business that would receive money in one fiscal period and not earn all of it until the next period is a theater that sells season tickets if its plays occur in two fiscal periods. If the theater does not adjust the amount of the liability downward as the subscribers receive the benefit of the plays, the current liabilities will be overstated. Furthermore, if the amount actually earned is not credited to the income account in an adjustment, the revenue and net income will be understated (or net loss will be overstated).