Case 2 Mohican Company

Cash introduction: Under the cash background send out of accounting, receiptss and expenses revenues are is recognize when cash is received and expenses are value when cash is paid. Accrual basis: revenues are recongnized when it is earned, realized, or manageable 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 agreement that is created when monies are received by a companion for goods and function non yet provided. Revenue will be recognized, and the deferred revenue obligation eliminated, when the services are comeed. (a) Under the cash basis mode, song warrant be are expensed as they are incurred guaranty costs are charged to the period in which the ships company complies with the warrantee. 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 lessen a warratny liability in the social class of the sale every because it is not probable that a liability has occured of the company cannot moderately depend the amount of the liability. Under the accrual method, guarantee 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 warranty 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 widen warranty is deferr! ed and recognized on a straight course of instruction basis oer the life of the occupy. 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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