Question

Melodyâs Piano School operations for the month of May were limited to the following transactions:1. Provided $500 of instruction to students. 2. Of the $500 of instruction provided in May, $400 is collected in cash, and an additional $300 is collected for lessons provided in April. 3. Paid April's piano rental bill of $100. Received May's bill of $150 but did not pay.What is Melody's Net Income for May using the cash basis of accounting?

Answer 1

Answer:

$600

Explanation:

Under the cash basis, the cash surplus is reported as profit which is calculated as under:

Cash Surplus = Cash inflow - Cash outflow

Here cash inflow are the receipt of cash which includes $400 and $300. Furthermore, the cash outflow includes $100 only.

So by putting values, we have:

Cash Surplus = ($400 + $300) - $100 = $600

This cash surplus of $600 will be reported as net income for the year under the cash basis of accounting.