A Week in the Life of a Small Government from cash vs. accrual accounting perspective

Fill in the below boxes by analysing the effects of the transactions on the financial statements: Cash Flow Statement (CFS), Operating Statement (OS) and Balance Sheet (BS).

Important !!!  If you get negative amount, fill in the boxes without the "-" sign !!!

Openings values are: Bank 50; Receivables 20; Fixed assets 700; Depreciation 0; Borrowings 500.

Transactions encountered during the period are:

a)    Corporate taxpayers are required to make tax payments of $100 million to the government, but only $90 million is received. At the end of the week, $10 million is outstanding. The effects on the financial statement are:

CFS:

OS:

BS:

b)   The government sells fixed assets for $100 million. The assets had been valued at $100 million. $100 million is received. The effects on the financial statement are:

CFS:

OS:

BS:

c)    Government salary payments are made during the week. In addition to paying employees $60 million, the government is obligated to provide for their pensions when they retire—employees earned $30 million in future pension rights during the period. The effects on the financial statement are:

CFS:

OS:

BS:

d)   The government settles a long-running legal dispute. It agrees to pay $30 million to the plaintiff in 2 months’ time. The effects on the financial statement are:

CFS:

OS:

BS:

e)    All the government’s borrowings are held in foreign exchange. The exchange rate declined by 2% during the week $10 million. The effects on the financial statement are:

CFS:

OS:

BS:

Financial statements reveal the effects after all the transactions as follows:

Cash accounting (CFS Bank balance) reports a

Accrual accounting (OS) shows a

Accrual accounting (BS) exhibits closing Net Assets of