Question

Sweet Catering completed the following selected transactions during May 2016: May 5: Received and paid electricity bill, $140 May 9: Received cash for meals served to customers, $3,610 May 23: Served a banquet on account, $2,810 May 31: Accrued salary expense, $800 May 31: Recorded prepaid insurance expired, $190 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. 3470 correct 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

Answer: (1) $5,290

(2) $3,470

Explanation:

Net Income from Accrual method:

= Served a banquet account - received and paid electricity bill + Received cash meals to customers - Accrued salary expense - Prepaid insurance expired

= $2,810 - $140 + $3,610 - $800 - $190

= $5,290

Net Income from Cash method:

=  Received cash meals to customers - received and paid electricity bill

= $3,610 - $140

= $3,470