Question

A company provided $1,500 of services to customers during the month of May. The customers paid in June. What would the impact of these transactions be during May on each of the following three items?
Cash balance - no effect
cash basis net income - no effect
accrual-basis net income - increase T/F

Answer 1

Answer:

The answer is true

Explanation:

The cash basis is a method of recording accounting transactions for revenue and expenses only when the corresponding cash is received or payments are made.  In the above transaction there was no cash received therefore there was no effect.

Accrual basis is a method of recording accounting transactions for revenue when earned and expenses when incurred. In the above transaction, a service was rendered which increases revenue despite the fact that nocash was received for the service.