Question

Daube Company's operations for the month of July are summarized as follows: A. Provided $7,600 of services on account. B. Received $3,700 cash from customers for services provided in July. C. Received $1,900 cash for services to be provided in August. D. Received $3,200 cash from customers on account for services provided in June. E. Paid June's warehouse rental bill on account in the amount of $1,400. F. Received July's warehouse rental bill of $1,500; set it aside to be recorded at a later date. Required: a. Determine the net income for July using the cash basis of accounting. b. Determine the net income for July using the accrual basis of accounting.

Answer 1

Please find below table useful to compute desired results: -

D А Bc 1 Particulars Given Cash Basis Accounting 2 Provided Services on Account 7600 Revenue =B3+B4+B5 3 Received Cash from Customers 3700 Expense =B6 4 Received Cash for Services 1900 Net Income =E2-E3 5 Received Cash from Customers 3200 6 Paid Rental Bill 1400 Accrual basis Accounting 7 Received rental bill 1500 Revenue =B2+B3 Expense =B7 Net income =E7-ES 11 Particulars Given 12 Sold Music 13 Received Cash 14 Paid Wages 15 Received bill 16 Received deposits 10600 6200 640 320 2150 Cash Basis Income Statement Revenues Cash Sales =B13 Customer Deposits =B16 Total Revenues =E13+E14 Expenses Salaries and wages Paid =B14 Cash Income =E15-E17 Accrual Basis Income Statement Revenues Sales =B12 Expenses Salaries and Wages Expense =B14 Utilities Expense =B15 Total Expense =E24+E25 Net Income =E22-E26

End results would be as follows: -

B E 7,600 A 1 Particulars Given 2. Provided Services on Account 3 Received Cash from Customers 4 Received Cash for Services 5 Received Cash from Customers 6 Paid Rental Bill 7 Received rental bill Cash Basis Accounting Revenue Expense Net Income 8.800 1,400 7,400 1.900 3,200 1,400 1,500 Accrual basis Accounting Revenue 11,300 Expense 1,500 Net income 9,800 11 Particulars Given 12 Sold Music 13 Received Cash 14 Paid Wages 15 Received bill 16 Received deposits 10.600 6.200 640 320 2.150 Cash Basis Income Statement Revenues | Cash Sales 6,200 Customer Deposits 2.150 Total Revenues 8,350 Expenses Salaries and wages Paid 640 Cash Income 7,710 Accrual Basis Income Statement Revenues Sales 10.600 Expenses Salaries and Wages Expense 640 Utilities Expense 320 Total Expense 960 Net Income 9,640