Case 2 Mohican Company

Cash introduction: Under the cash land air of accounting, receiptss and expenses revenues are is recognize when cash is received and expenses are recognize when cash is paid. Accrual basis: revenues are recongnized when it is earned, realized, or realizable and expenses are recognized when incurred, regardless if cash has been paid or non (this is following the Matching Principle) Deferred revenue: is a financial certificate of indebtedness that is created when monies are received by a companion for goods and work non yet provided. Revenue will be recognized, and the deferred revenue liability eliminated, when the services are comeed. (a) Under the cash basis mode, well-worn warrant be are expensed as they are incurred endorsement costs are charged to the period in which the caller complies with the sanction. No liability is recored for future costs of warranties and the liability is not charged in the period of sales agreement. The cash basis mode is use when a company does not light a warratny liability in the socio-economic class of the sale both because it is not probable that a liability has occured of the company cannot sanely depend the amount of the liability. Under the accrual method, endorsement costs are charged to the operating expense in the year of the sale.

This method is the generally accepted method and shoudl be used whenever the stock-purchase warrant is an integral and inseparable part of the sale and is a way out contingency. This approach is also called the expense warranty approach. (b) Warranties are sometimes sold separately from the products. When this happens, the sales warranty approach is utilise and revenue on the sale of the ! drawn-out warranty is deferred and recognized on a straight wrinkle basis oer the life of the switch off. This revenue is deferred because the seller of the warranty has an obligation to perform services over the life of the contract and these should be barely costs that vary with and are at a time related to the sale of the contract. (c) Mohican will recognize...If you want to get a full essay, order it on our website: OrderEssay.net

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