Explain how accrual accounting differs from cash-basis accounting
Response to the following problem:
Westwood Corporation began 2014 owing notes payable of $4.7 million. During 2014 Westwood borrowed $1.7 million on notes payable and paid off $1.6 million of notes payable from prior years. Interest expense for the year was $0.6 million, including $0.2 million of interest payable accrued at December 31, 2014.
Show what Westwood should report for these facts on the following financial statements:
1. Income statement for 2014
a. Interest expense
2. Balance sheet as of December 31, 2014
a. Notes payable
b. Interest payable