Question

Splendid Occasions received $2,970 for services to be performed for the next 8 months on March 31 and recorded this transaction using the Unearned Revenue account.
If Splendid Occasions had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?Sweet Catering completed the following selected transactions during May 2016:
May 1: Prepaid rent for three months, $2,400
May 5: Received and paid electricity bill, $60
May 9: Received cash for meals served to customers, $2,530
May 14: Paid cash for kitchen equipment, $2,920
May 23: Served a banquet on account, $2,810
May 31: Made the adjusting entry for rent (from May 1)
May 31: Accrued salary expense, $2,670
May 31: Recorded depreciation for May on kitchen equipment, $380If Sweet Catering had recorded transactions using the Cash method, how much net income (loss) would they have recorded for the month of May?If Sweet Catering had recorded transactions using the Accrual method, how much net income (loss) would they have recorded for the month of May?

Answer 1

Answer:

If Splendid Occasions had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?

Ans: $2,970

The ''other method'' in question is the Cash method which recognizes revenue when cash is paid unlike the Accrual method that recognizes it when earned.

Using the Cash method the Service Revenue would be $2,970 because the cash has been received for it.

If Sweet Catering had recorded transactions using the Cash method, how much net income (loss) would they have recorded for the month of May?

= Cash revenues - Cash expense

=  Received cash for meals served to customers - Prepaid rent for three months - Received and paid electricity bill

= 2,530 - 2400 - 60

= $70

If Sweet Catering had recorded transactions using the Accrual method, how much net income (loss) would they have recorded for the month of May?

= Revenue - Expense

= Served a banquet on account + Received cash for meals served to customers - Rent - Electricity - Accrued salary expense - depreciation

= 2,810 + 2,530 - (2,400/3) - 60 - 2,670 - 380

= $1,430

Cash spent on Equipment is not expense but capital expenditure.