Question

Peace of mind 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, Peace of Mind has collected $900 from​ cash-paying customers. Peace of MindPeace of Mind​'s remaining customers owe the business $1,200.
How much service revenue would Peace of MindPeace of Mind have for the year under the

a. cash​ basis?

b. accrual​ basis?

A. under the cash basis, Peace of mind will record $_______ of service revenue for the year.

B. Under the accrual basis, Peace of mind will record $_______ of service revenue for the year.

Answer 1

Answer:

a. Cash basis - Service revenue is $900

b. Accrual basis - Service revenue is $2,100 (which is $1200 + $900)

Explanation:

In accounting, there are 2 basis for recognizing transactions; these are cash basis and accrual basis.

In cash basis, sales and expenses are not recorded unless cash has been collected and paid respectively. In the accrual basis of accounting, expenses and sales are recorded when incurred and earned respectively.

Revenue earned under the accrual basis would therefore include the revenue for which cash has been collected and those for which cash is yet to be collected.