Question

Part Three - Problems. Answer All Four Questions: 1. RNK Inc. charges $135 per month for a storage unit. In the first quarter of the year, they collected $$6,615. Ten customers pre-paid for three months rental in January, seven customers pre-paid for two months rental in February, and five customers paid for one month in March. Required: a. Using the cash basis of accounting, calculate RNK's revenue in January: b. Using the accrual basis of accounting, what's RNK's revenue in January C. Explain the difference in the revenue numbers: Demonstrate your work:

Answer 1

Monthly Rent = $135 Working: 10 Customers 7 Customers 5 Customers Total 4050 (10 x 3 x 135] 4050 Rent received in: Jan Feb Mar Total $ 1890[7 x 2 x 135] 675(5 x 1 x 135] 4050 1890 675 6615 1350 Rent received for: Jan Feb Mar Total 1350 $ 1350 1350 4050 945$ 945 1890 2970 675 675 6615 answer 1 Cash received in January as Rent = $ 4050. [10 customers x 3 months x $ 135 per month] = Cash basis Revenue. Actual Rent revenue earned for January = 10 customers x 1 month x $ 135 per month = $ 1,350 = Accrual basis Revenue. answer 2 answer 3 Under Cash basis, revenue equals to the cash collected. Under accrual method, revenue equals to revenue earned for that period. Out of $ 4050 received in January, January Rent revenue of $ 1350 is earned Revenue (accrual basis) and rest is Unearned Income.