Question

Sweet Catering completed the following selected transactions during May 2016:

• May 1: Prepaid rent for three months, $1,500
• May 5: Received and paid electricity bill, $150
• May 9: Received cash for meals served to customers, $2,030
• May 14: Paid cash for kitchen equipment, $3,790
• May 23: Served a banquet on account, $2,240
• May 31: Made the adjusting entry for rent (from May 1).
• May 31: Accrued salary expense, $3,840
• May 31: Recorded depreciation for May on kitchen equipment, $250

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.

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) Cash Method:

In cash method, Revenue and Expense are recorded only when cash is received and paid.

2) Net Income ( loss) using cash method:

Meals served to customer	$2030
Prepaid Rent	($1500)
Electricity Bill	($150)
Cash paid for kitchen Equipment	($3790)
Net Income / (Loss)	- $3410

3) Accrual Method:

In accrual method of accountig, revenue is recorded when it is earned, while expense is recorded when it is incurred.

Revenue ( $2030 + $2240)	$4270
Expense:
Rent ( 1500*1/3)	(500)
Electricity	($150)
Salary	($3840)
Depreciation	($250)
Net income / ( loss)	($470)