With this being 450.00 from Dec 31, 2003 to Dec, 31 2006 what would the accrual basis be and the cash basis for the balance sheet insurance asset using and the insurance expense using accrual basis and cash basis
To determine the accrual basis and cash basis for the balance sheet insurance asset and the insurance expense, we need to understand the concepts of accrual accounting and cash accounting.
Accrual Basis:
Accrual accounting recognizes transactions at the time they occur, regardless of when the actual cash flow takes place. This means that revenue and expenses are recognized when they are earned or incurred, rather than when the cash is received or paid.
Balance Sheet Insurance Asset (Accrual Basis):
To calculate the balance sheet insurance asset on an accrual basis, we would need more information about the specific insurance policy or policies in question. The insurance asset represents the prepaid portion of the insurance premium that has not yet expired or been used. If we know the total insurance premium paid over the given period and the duration of the insurance policy, we can calculate the portion that is still considered an asset at the end of the specified period.
Insurance Expense (Accrual Basis):
To determine the insurance expense on an accrual basis, we need to consider the portion of the insurance premium that corresponds to the period from December 31, 2003, to December 31, 2006. This can be calculated by dividing the total premium by the duration of the insurance policy and multiplying it by the number of years for the specific period. This expense is recognized on the income statement during the period it applies to, regardless of when the payment was made.
Cash Basis:
Cash accounting, unlike accrual accounting, recognizes revenue and expenses only when the associated cash is received or paid. It focuses solely on the actual inflows and outflows of cash and does not consider when the transactions occurred.
Balance Sheet Insurance Asset (Cash Basis):
On a cash basis, the insurance asset would not be recognized on the balance sheet. Since cash accounting only records transactions when money is exchanged, the insurance asset is not accounted for until the premium payment is made.
Insurance Expense (Cash Basis):
Similarly, on a cash basis, the insurance expense would be recognized on the income statement only when the premium payment is made. The full premium amount would be recognized as an expense in the year the payment occurred, rather than being spread over the years covered by the insurance policy.
In summary, the accrual basis considers revenue and expenses when they are incurred or earned, while the cash basis recognizes them when cash is received or paid. The specific calculations for the balance sheet insurance asset and the insurance expense depend on the details of the insurance policy and the payment schedule.