Explain how accrual accounting differs from cash-basis accounting; apply the revenue and expense recognition principles
Response to the following problem:
During 2014, Boyd Network, Inc., which designs network servers, earned revenues of $730 million. Expenses totaled $410 million.Boyd collected all but $26 million of the revenues and paid $425 million on its expenses. Boyd's top managers are evaluating 2014, and they ask you the following questions:
a. Under accrual accounting, what amount of revenue should Boyd Network report for\ 2014? How does the revenue principle help to answer these questions?
b. Under accrual accounting, what amount of total expense should Boyd Network report for 2014? Which accounting principle helps to answer this question?
c. Re-do parts a and b using the cash basis. Explain how the accrual basis differs from the\ cash basis.
d. Which financial statement reports revenues and expenses? Which statement reports cash receipts and cash payments?