Question

Mostert Music Company had the following transactions in March: Sold music lessons to customers for $12,050; received $6,650 in cash and the rest on account. Paid $700 in wages for the month. Received a $330 bill for utilities that will be paid in April. Received $4,550 from customers as deposits on music lessons to be given in April. Based on the information above, prepare a cash basis and an accrual basis income statement.

Answer 1

Answer:

Under Cash Basis all transactions for which cash is exchanged whether paid or received is accounted for.

Cash Basis Income Statement

Sales Revenue = $6,650

Customer Deposits = $4,550

Total Revenue = $11,200

Less: Expenses:

Wages              = ($700)

Net Income = $10,500

Under Accrual basis, the transactions are recorded as to the period they relate, and it is not necessary to exchange cash for the same.

Accrual Basis Income Statement

Sales Revenue = $12,050

Total Revenue = $12,050

Expenses

Wages = ($700)

Utilities = ($330)

Total Expenses = ($1,030)

Net Income = $11,020