1. Revenue recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provides doorbell repair...
1. Revenue recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provides doorbell repair services to customers. The accountant for Ring The Bells noted the following events which took place during April, 2018:
• On April 4th, Ring the Bells received $725 in cash from customers for services that had been provided in March, 2018 on account.
• On April 11th, provided $280 worth of services to customers on account. Cash payment for these services will not be collected until May.
• On April 21st, provided services worth $472 to customers, all of whom paid for these services in cash on April 21st.
• On April 28th, received $806 in cash from customers for services which will be provided on May 8th, 2018.
a. Using cash-basis accounting, how much revenue would Ring the Bells record for April 2018? Briefly explain or show how you got your answer.
b. Using accrual-basis accounting, how much revenue would Ring the Bells record for April 2018? Briefly explain or show how you got your answer.
Homework Answers
| a | Under Cash basis of accounting the revenue will be recognized on the date when the cash is received irrespective of when the service is provided. | |||||
| Particulars | Revenue recognized in April | |||||
| Received cash on April 4th for services provided in March | $ 725.00 | |||||
| Services provided on April 11th but payment to be received in May | $ - | |||||
| Provided services on April 21st and paid on same day | $ 472.00 | |||||
| Received cash on April 28th for services to be provided on May 8th | $ 806.00 | |||||
| Total Revenue to be recognized on April 2018 | $ 2,003.00 | |||||
| b | Under Accrual basis of accounting revenue is recognised when the services are actually performed irrespective of when cash is received | |||||
| Particulars | Revenue recognized in April | Comments | ||||
| Received cash on April 4th for services provided in March | $ - | Revenue already recognised in March | ||||
| Services provided on April 11th but payment to be received in May | $ 280.00 | |||||
| Provided services on April 21st and paid on same day | $ 472.00 | |||||
| Received cash on April 28th for services to be provided on May 8th | $ - | Revenue to be recognised on May when the service is to be provided | ||||
| Total Revenue to be recognized on April 2018 | $ 752.00 | |||||
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