Question

Problem 3-11 On January 1, 2017, Norma Smith and Grant Wood formed a computer sales and service company in Soapsville, Arkansas, by investing $90,860 cash. The new company, Sandhill Sales and Service, has the following transactions during January 1. Pays $9,000 in advance for 3 months' rent of office, showroom, and repair space 2. Purchases 41 personal computers at a cost of $1,640 each, 7 graphics computers at a cost of $2,640 each, and 26 printers at a cost of $440 each, paying cash upon delivery. 3. Sales, repair, and office employees earn $13,460 in salaries and wages during January, of which $3,860 was still payable at the end of January 4. Sells 31 personal computers at $2,690 each, 5 graphics computers for $3,740 each, and 16 printers for $640 each; $75,860 is received in cash in January, and $36,470 is sold on a deferred payment basis 5. Other operating expenses of $9,260 are incurred and paid for during January; $2,860 of incurred expenses are payable at January 31

Answer 1

Two methods to prepare financial statement

• Accrual method
• Cash basis

In accrual method matching concept is followed ,expenses and income related to period are recognized in Income statement.

In cash basis ,cash receipts and cash disbursement are recorded.