The difference between accrual and cash accounting
Washington Forest Products began operations on January 1, 2011. On December 31, 2011, the company”s accountant ascertains that the following amounts should be reported as expenses on the income statement:
|
Insurance expense |
$20,000 |
|
Supplies expense |
11,000 |
|
Rent expense |
14,000 |
A review of the company”s cash disbursements indicates that the company made related cash payments during 2011 as follows:
|
Insurance |
$29,000 |
|
Supplies |
27,000 |
|
Rent |
8,000 |
a. Explain why the amounts shown as expenses do not equal the cash paid.
b. For each expense account, compute the amount that should be in the related balance sheet account as of December 31, 2011. Hint: Note that Forest Products began operations on January 1, 2011.