Financial Accounting (12th Edition) (What's New in Accounting)
12th Edition
ISBN: 9780134725987
Author: C. William Thomas, Wendy M. Tietz, Walter T. Harrison Jr.
Publisher: PEARSON
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Chapter 3, Problem 3.58AP
Group A
LO 1
(Learning Objective 1: Explain how accrual accounting differs from cash-basis accounting) Berkley Consulting had the following selected transactions in July:
| July 1 | Prepaid insurance for July through September, $3,900. |
| 4 | Purchased office furniture for cash, $3,000. |
| 5 | Performed services and received cash, $1,800. |
| 8 | Paid advertising expense, $300. |
| 11 | Performed service on account, $3,100. |
| 19 | Purchased computer on account, $1,600. |
| 24 | Collected for July 11 service. |
| 26 | Paid account payable from July 19. |
| 29 | Paid salary expense, $1,100. |
| 31 | Adjusted for July insurance expense (see July 1). |
| 31 | Earned revenue of $400 that was collected in advance back in June. |
| 31 | Recorded July |
Requirements
- 1. Show how each transaction would be handled (in terms of recognizing revenues and expenses) using the cash basis and the accrual basis
- 2. Calculate July income (loss) before tax under each accounting method.
- 3. Indicate which measure of net income or net loss is preferable. Use the transactions on July 11 and July 24 to explain.
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Chapter 3 Solutions
Financial Accounting (12th Edition) (What's New in Accounting)
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