Answer:
1. Cash income is $10,920
2. Net income is $12,995
Explanation:
1. Cash basis income statement
A cash basis income statement refers to an income statement that records revenue for which cash has been received and expenses for which cash has been paid for in a particular period. Therefore, cash basis income statement is not compliant with the generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS).
The cash basis income statement for Mostert Music Company for March can therefore be prepared as follows:
Mostert Music Company
Income Statement (Cash Basis)
For the month ended March
<u>Particulars $ </u>
Cash Revenue:
Cash received for music lesson sold 8,400
Deposit received from customers <u> 3,200 </u>
Total Cash revenue 11,600
Cash Expenses:
Wages paid <u> (680) </u>
Cash income <u> 10,920 </u>
2. Accrual basis income statement
An accrual basis income statement records revenues when they are earned and expenses when they incurred no matter when cash is received or paid. Therefore, an accrual basis income statement is compliant with GAAP or IFRS.
The accrual basis income statement for Mostert Music Company for March can therefore be prepared as follows:
Mostert Music Company
Income Statement (Accrual Basis)
For the month ended March
<u>Particulars $ </u>
Revenue:
Total sales to customers 14,000
Expenses:
Wages (680)
Utilities bill <u> (325) </u>
Net income <u> 12,995 </u>
