Question

Read each scenario, decide whether the company is using Cash basis or Accrual basis, and then enter your answer to the question. The Johnny Flowers Law Firm prepays for advertising in the local newspaper. On January 1, the law firm paid $3,480 for six months of advertising. Johnny Flowers Law Firm recorded $3,480 in the Prepaid Advertising account. If Johnny Flowers Law Firm had recorded their expenses using the other method, how much advertising expense would they have recorded for the two months ending February 28? Enter this value as a positive number. Safe Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Safe Home has collected $2,260 from cash-paying customers. Safe Home's remaining customers owe the business $1,340.Safe Home recorded $2,260 of service revenue for the year.

Answer 1

The Johnny Flowers Law Firm Prepays for Advertising in the local Newspaper. On January 1, The Law Firm Paid $3480 For six months Of Advertising. Johnny Flower Law Firm Recorded 3480 in the Prepaid Advertising account

Accrual Basis – since the Prepaid Advertising account is opened and recorded.

If Johnny Flower Law Firm Had Recorded Their Expenses using the other Method, How much advertising expense would they have recorded for the two months ending February 28? Enter value as a positive Number

Under the Cash basis They would record 3480 as advertising expenses

This is because in cash basis when the money is paid it would be considered as expenses

Safe Home provides House-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year safe Home has collected 2,260 from cash paying customers. Safe home’s remaining customers owe the business 1,340 safe home Safe home recorded 2,260 of service revenue for the year

Cash Basis – Since the revenue earned , but was not received payment for was not recorded as service revenue

For accrued basis they would have recorded 3,590, since that is the total earned in that period

Splendid Occasions Received 840 for service revenue to be performed for the next 8 months on march 31 and recorded this transaction using the Unearned Revenue account.

Accrued Basis -else they would have recorded 840 for service revenue since the cash is already paid to them

840 – in cash basis they would have recorded 840 as service revenue since they cash is already received

Sweet Catering Completed the following selected transaction during May 2016

Cash Basis

May 1   Cash                                                                          1200

              Rent Expense                                1200

May 5 Cash                                                               240

              Utility   Expense              240

May 9 Cash                      3020

              Service revenue                            3020

May 14 Cash                                               2,630

              Equipment         2,630

May 23 No need to record

May 31 No need to record

May 31 no need to record

May 31 No need to record

Net Income is Service revenue – expense

              =3020 -1200-240

              =1580

For accrued basis

May 1   Cash                                                                          1200

              Rent prepaid                                 1200

             

May 5 Cash                                                               240

              Utility   Expense              240

May 9 Cash                      3020

              Service revenue                            3020

May 14 Cash                                               2,630

              Equipment         2,630

May 23 Account receivable         1850

              Service Revenue                                         1850

May 31 Rent Expense                  400

              Prepaid Rent                                               400

May 31 Salary Expense   3230

              Salaries Payable              3230

May 31 Depreciation Expense 520

              Equipment                                     520

Net Income =Revenue – Expense

                           =1850+3020-240-400-3230-520

                           Net income=480