Question

* More Info - X May 1 Prepaid insurance for May through July, $3,900. 4 Purchased office furniture for cash, $3,500. 5 Performed services and received cash, $1,800. 8 Paid advertising expense, $200. 11 Performed service on account, $3,300. 19 Purchased computer on account, $2,200. 24 Collected for May 11 service. 26 Paid account payable from May 19. 29 Paid salary expense, $1,100. 31 Adjusted for May insurance expense (see May 1). 31 Earned revenue of $800 that was collected in advance back in April. 31 Recorded May depreciation expense on all fixed assets, $160. Print Done

Requirement 3.

The (accural-basis / cash-basis) measure of net income is preferable because it accounts for revenues and expenses when they (are recieved or paid in cash / occur), not when they (are recieved or paid in cash / occur) . For example, on May 11, the company (collected / earned) $3,000 of revenue and increased its wealth as a result. The (accural-basis / cash-basis) basis records this​ revenue, but the (accural-basis / cash-basis) ignores it.

On May 24, the business collected the receivable that was created by the revenue earned on account at May 11. The (accural-basis / cash-basis) records no revenue on May 24, because the​ company's increase in wealth occurred back on May 11, The (accural-basis / cash-basis) waits until cash is​ received on May 24, to record the revenue. This is (too early / too late).

Select the options in brackets

Answer 1

Under cash basis of accounting ,revenue is recorded at the time cash is received and expense is recorded when cash is paid.

Under accrual basis of accounting ,revenue is recorded at the time it is earned and expense is recorded a the time it is incurred whether received /paid is irrelevant.

say No depreciation is recorded in cash basis of accounting since whole of the cost of asset is charged as expense at the time cash is paid to purchase such asset whereas under accrual basis depreciation is claimed as expense over the useful life of asset.

	CASH BASIS	ACCRUAL BASIS
1	-3900	0
4	-3500	0
5	1800	1800
8	-200	-200
11	0	3300
19	0	0
24	3300	0
26	-2200	0
29	-1100	-1100
31	0	-1300
31	0	800
31	0	-160
Income /(loss)	-5800	3140

**31)Being insurance expired for one month out of 3 month = 3900*1/3 = 1300

3)

The (accural-basis ) measure of net income is preferable because it accounts for revenues and expenses when they (are occur), not when they (are recieved or paid in cash) . For example, on May 11, the company (earned) $3,000 of revenue and increased its wealth as a result. The (accural-basis basis records this​ revenue, but the (cash-basis) ignores it.

On May 24, the business collected the receivable that was created by the revenue earned on account at May 11. The (accural-basis ) records no revenue on May 24, because the​ company's increase in wealth occurred back on May 11, The (cash-basis) waits until cash is​ received on May 24, to record the revenue. This is (too late).