Question

Post closing trial balance - 8 POINTS: CASH 20,000 10,000 15,000 Is this example post closing trial balance correct? (write Yes or No) A/R EQUIPMENT A/P 5,000 10,000 15,000 If not, list or describe the errors in the space below: COMMON STOCK RETAINED EARNINGS DIVIDENDS SERVICE REVENUE RENT EXPENSE 3,000 23,000 5,000 53,000 53,000 CASH VS ACCRUAL - 18 POINTS Determine Net Income under both the cash and accrual methods of accounting based on the following information: * The Company earned revenues of $50,000 during the year. Cash paid by customers for revenues earned is $40,000 * Expenses incurred total $35,000 • Expenses paid for with cash totaled $28,000 * The Company paid $5,000 for prepaid expenses for the next accounting period • Customers paid $2,000 in advance for services the Company will earn next accounting period CASH METHOD ACCRUAL METHOD Revenues Expenses Net Income Which set of books are considered GAAP (Cash or Accura

Answer 1

Post closing trial balance is not correct.

Following are the errors in the Post closing trial balance:

- Dividends

- Service revenue

- Rent expense

	Cash method	Accrual method
Revenues	42,000	50,000
Expenses	33,000	35,000
Net income	9,000	15,000

Revenues in cash basis = Cash paid by customers for revenue earned + Cash paid in advance by customers for services to be provided next year

= 40,000 + 2,000

= $42,000

Expenses in cash basis = Expenses paid for in cash + Prepaid expenses

= 28,000 + 5,000

= $33,000

Accrual set of books are considered as GAAP.

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