During 2012, Barron Network, Inc., which designs network servers, earned revenues of $840 million. Expenses totaled $500 million. Barron collected all but $26 million of the revenues and paid $580 million on its expenses. Barron’s top managers are evaluating 2012, and they ask you the following questions:
a. Under accrual accounting, what amount of revenue should Barron Network report for 2012? Is the revenue the $840 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 Barron Network report for 2012—$500 million or $580 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?