Question

Total Spa Services earned $ 135 comma 000 of service revenue during 2018. Of the $ 135 comma 000 ​earned, the business received $ 111 comma 000 in cash. The remaining​ amount, $ 24 comma 000​, was still owed by customers as of December 31. In​ addition, Total Spa Services incurred $ 80 comma 000 of expenses during the year. As of December 31​, $ 16 comma 000 of the expenses still needed to be paid. In​ addition, Total Spa Services prepaid $ 7 comma 000 cash in December 2018 for expenses incurred during the next year. 1. Determine the amount of service revenue and expenses for 2018 using a cash basis accounting system. 2. Determine the amount of service revenue and expenses for 2018 using an accrual basis accounting system.

Answer 1

1. Determine the amount of service revenue and expenses for 2018 using a cash basis accounting system.

2. Determine the amount of service revenue and expenses for 2018 using an accrual basis accounting system.

Cash Basic Accrual basic

Service revenue 111000 135000

Expense 23000 80000

Step-by-step explanation:

The difference between cash and accrual accounting lies in the timing of when sales and purchases are recorded in your accounts. Cash accounting recognizes revenue and expenses only when money changes hands, but accrual accounting recognizes revenue when it’s earned, and expenses when they’re billed (but not paid).

Spa services earned 135000

111000 Cash

24000 Account receivable

Services

Expense 80000 Account Payable

16000 Cash

Expense 7000 Prepaid Cash

Cash Basic Accrual basic

Service revenue 111000 135000

Expense 23000 80000