Under the accrual accounting, we would subtract the increased prepaids expense because
They represent cash paid for future periods, not current expenses
Under the accrual accounting, we would add the increase in accrual liabilities because
They represent current expense not yet paid in cash
A decrease in prepaid interest means
That some prepaids interest from prior periods was used up this year, increasing the interest expense for the current prior year
Since cash basis only counts cash paid, it misses this used prepaid interest, so we add it back to get accrual expenses
A decrease in liability
Means the company paid off some interest that was accrued in a prior period
To avoid double counting, we subtract decrease form the subtotal
Why subtracting increased accrued liabilities
Under the cash accounting, accrued liabilities represent recognized but not yet paid, subtracting the increase removes expenses that have not yet resulted in cash outflow
Why add increased prepaid expenses
Under the cash accounting, prepaid expenses represent cash paid for expenses not yet recognized, adding the increase accounts for cash outflow that are not yet expenses
The proper title for a financial statement prepared using the income tax basis of accounting is
Statement of assets, liabilities, and equity-income tax basis
A statement of financial position is an
Accrual basis financial statemetn prepared by a non-for-profit organization, thus not included for OCI basis of accounting
