a act Read each scenario, decide whether the company is using Cash basis or Accr

Question

a act Read each scenario, decide whether the company is using Cash basis or Accrual basis, and then enter your answer to the question The Johnny Flowers Law Firm prepays for advertising in the local newspaper. On January 1, the law firm paid $3,580 for six months of advertising. Johnny Flowers Law Firm recorded $3,580 in the Prepaid Advertising account. If Johnny Flowers Law Firm had recorded their expenses using the other method, how much advertising expense would they have recorded for the two months ending February 28? Enter this value as a positive number. Secure Home 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, Secure Home has collected $920 from cash-paying customers. Secure Home's remaining customers owe the business $3,260. Secure Home recorded $920 of service revenue for the year. If Secure Home had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?

Explanation / Answer

1)Advertising expense to be recorded for 2 months = 3580*2/6

                  = $ 1193.33

2)under accrual basis revenue is recorded as they are earned whether cash is received or not .

revenue recorded under accrual method = 920+3260=$ 4180

**in the given problem revenue is recorded using cash basis accounting (since only cash revenue is recorded)

3)Revenue under cash basis accounting = $ 1120 since under this accounting revenue is recorded as and when cash is received

4)under cash method ,revenue is recorded cash is received and expense is recorded when cash is paid

net income = cash revenue -cash expense

       = 2030 - [1800+60+2120]

         = 2030 -3980

        = - 1950

b)revenue is recorded when it is earned and expense is recorded when it is incurred irrespective of whether cash is received/paid or not

Revenue :2030+2020=4050

expense = 600 rent + 60+2040+430= 3130

net income = 4050 -3130

     = 920

**rent = 1800/3 = 600 per month

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