Answer to Question #79340 in Finance for Hugh Heron

Question

What is the expense cycle and why is it more complex than the revenue cycle?


Why is it important to state the assets and liabilities at their correct accrual basis amounts at the start of the accounting cycle?


What might rising trade debtors indicate and what action might you take?

Answer 1

1. What is the expense cycle and why is it more complex than the revenue cycle?
An expense cycle is a set of purchasing decisions. The process repeats itself by creating purchased products and receiving the goods and services that are approved and paid through invoices. Expense cycle is more complex than the revenue cycle since it operates on a wide range of business sphere.
2. Why is it important to state the assets and liabilities at their
correct accrual basis amounts at the start of the accounting cycle?
It helps to balance input cash and output cash to enable the business to operate at a profit. If the assets and liabilities are not stated, the firm can run at a loss.
3. What might rising trade debtors indicate and what action might you take?
It indicates that the customers purchasing certain commodities are many and are ready to buy large amounts of goods and service in a company. The best action to do in such a case is to ease the process receiving the cash accurately to avoid miscalculation of the business deals