During 2014. Boyd Network. Inc., which designs network servers, earned revenues

Question

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? Under accrual accounting, what amount of total expense should Boyd Network report for 2014? Which accounting principle helps to answer this question? Re-do parts a and b using the cash basis. Explain how the accrual basis differs from the cash basis. Which financial statement reports revenues and expenses? Which statement reports cash receipts and cash payments? Under accrual accounting, what amount of revenue should Boyd Network report for 2014? How does the revenue principle help to answer these questions? The amount of revenue that should be reported for the year is $ million. The revenue principle says to record revenue when it has been , regardless of when . Therefore, the amount of revenue reported is what Boyd.

Explanation / Answer

(a) Under accrual accounting,

Revenue to be reported for the year is $730 million. The revenue principle says to record revenue when it has been accrued, regardless of when payment is received. Therefore, amount of revenue reported is what Boyd earned.

(b)

Total expense to report is $410, the amount accrued and not what has been paid. This is based on the accrual principle and matching principle that states revenues and expenses should be mactched in the same period as and when accrued.

(c)

Under Cash basis,

Revenue reported = $(730 - 26) = $704 million.

This is lower than revenue under accrual principle, since $26 million of revenue has not been collected.

Expense reported = $425 million.

This is higher than expense under accrual principle.

(d)

Revenues and expenses are reported in Income Statement.

Cash receipts and payments are recorded in Cash Flow Statement.

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