Question

Sweet Catering completed the following selected transactions during May 2016:
May 1: Prepaid rent for three months, $3,000 May 5: Received and paid electricity bill, $110 May 9: Received cash for meals served to customers, $1,340 May 14: Paid cash for kitchen equipment, $3,090 May 23: Served a banquet on account, $2,050 May 31: Made the adjusting entry for rent (from May 1). May 31: Accrued salary expense, $1,070 May 31: Recorded depreciation for May on kitchen equipment, $290
	If Sweet Catering had recorded transactions using the Cash method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.
	If Sweet Catering had recorded transactions using the Accrual method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.

Answer 1

Computation of net income/ loss recorded for the month of May using cash method

Particulars	Amount (in$)
Received cash of meals served to customers	$1340
(-) prepaid rent for three months	($3000)
(-) received and paid electricity bill	($110)
(-) paid cash for kitchen equipment	($3090)
Net loss	($4860)

Computation of net income/loss recorded for the month of May using accrual method

Particulars	Amount (in$)
Received cash of meals served to customers	$1340
(+) served banquet on account	$2050
Total revenue	$3390
Less expenses
(-) rent expense for may (3000/3)	($1000)
(-) received and paid electricity bill	($110)
(-) accrued salary expense	($1070)
(-) depreciation expense for may on kitchen equipment	(290)
Net income	$920