Question

Protect provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Protect has collected $500 from cash paying customers. Protect's remaining customers owe the business $1,200.
How much service revenue would Protect have for the year under:

a. Cash Basis?

b. Accural Basis?

Answer 1

Answer:

a. $500

b. $1,700

Explanation:

In the cash basis system of accounting, revenue is recognized once cash has been collected while under accrual basis, revenue is collected once it is earned irrespective of whether cash has been collected or not.

Expenses are recorded when cash is paid in the cash basis system while expenses are recorded once it is incurred under the accrual system of accounting.

Hence

Cash basis - revenue earned is $500 for the year

Accrual basis - revenue earned is $1700 ( the sum of the amount paid and owed by the customer).