Question

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, $100

May 9: Received cash for meals served to customers, $1,290

May 14: Paid cash for kitchen equipment, $3,250

May 23: Served a banquet on account, $1,710

May 31: Made the adjusting entry for rent (from May 1).

May 31: Accrued salary expense, $2,100

May 31: Recorded depreciation for May on kitchen equipment, $530

1) If Sweet Catering had recorded transactions using the Cash method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.

2) If Sweet Catering had recorded transactions using the Accrual method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.

Answer 1

1. if cash basis was used. net income = ($4,460)

prepaid rent	(2,400)
paid electricity	(100)
receipt of cash	1,290
cash for kitchen equipment	(3,250)
served banquet	nil
rent adjustment	nil
salary expense accrues	nil
depreciation	nil
net income	(4,460)

2.accrual method net income =($530).

prepaid rent	nil
electricity bill	(100)
cash for meals served	1,290
cash for equipment	nil
served on account	1,710
rent adustment (2,400 / 3)	(800)
salary accrued	(2,100)
depreciation	(530)
net income	(530)