Sweet Catering completed the following selected transactions during May 2016:

Question

May 1: Prepaid rent for three months, $2,400
May 5: Received and paid electricity bill, $220
May 9: Received cash for meals served to customers, $3,850
May 14: Paid cash for kitchen equipment, $2,010
May 23: Served a banquet on account, $2,740
May 31: Made the adjusting entry for rent (from May 1).
May 31: Accrued salary expense, $550
May 31: Recorded depreciation for May on kitchen equipment, $590

 

 

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

The best approach is to journalize the transactions and post them to T-accounts. Post all revenues in a single revenue account and all expenses in a single expense account. when you are finished, your cash account will tell you how much income or loss you have on the cash basis and your revenue and expense accounts will tell you how much income you have on the accrual basis. Here is the first two entries:

 

dr. Prepaid rent . . . 2,400

cr. . . . Cash . . . 2,400

 

dr. Expense . . .220

cr. . . . Cash . . .220