During 2012, Gibson Network, Inc., which designs network servers, earned revenues of $780 million. Expenses totaled $530 million. Gibson collected all but $25 million of the revenues and paid $560 million on its expenses. Gibson’s top managers are evaluating 2012, and they ask you the following questions:
a. Under accrual accounting, what amount of revenue should Gibson Network report for 2012? Is it the revenue of $780 million earned or is it the amount of cash actually collected? How does the revenue principle help to answer these questions?
b. Under accrual accounting, what amount of total expense should Gibson report for 2012—$530 million or $560 million? Which accounting principle helps to answer this question?
c. Which financial statement reports revenues and expenses? Which statement reports cash receipts and cash payments?