Question

1. Revenue recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provides doorbell repair services to customers.  The accountant for Ring The Bells noted the following events which took place during April, 2018:

• On April 1^st, provided services worth $1,000 to customers. Customers paid $200 in cash on April 1^st, the remaining $800 will be collected in May.
• On April 6^th, received $440 in cash in advance from customers for services which will be provided on May 13^th, 2018.
• On April 20^th, provided $915 worth of services to customers on account.  Cash payment for these services will not be collected until May.
• On April 24^th, Ring the Bells collected $360 in cash from customers for services that had already been provided on account in March, 2018.
  1. Using cash-basis accounting, how much revenue would Ring the Bells record for April 2018?  Briefly explain or show how you got your answer.
  2. Using accrual-basis accounting, how much revenue would Ring the Bells record for April 2018?  Briefly explain or show how you got your answer.

Answer 1

Meaning of Cash Accounting System -Cash accounting is an accounting method where payment receipts are recorded during the period in which they are received, and expenses are recorded in the period in which they are actually paid.

As per the Cash Basis accounting the amount of revenue that would be recorded by the Rings the Bells, Inc. for the month of April 2018 detailed below-:

Meaning of Accrual Accounting System-Accrual basis of accounting is a system of recognizing revenues and expenses when they are incurred instead of focusing on when they are paid or collected

As per the Accrual Basis of accounting the amount of revenue that would be recorded by the Rings the Bells, Inc. For the month of April 2018 detailed below-: