Question

Melody's Piano School operations for the month of May were limited to the following transactions:

• Provided $400 of piano lessons to students who paid in cash.
• Provided $100 of piano lessons on account.
• Collected $300 from students who took piano lessons during April.
• Paid April's piano rental bill of $100.
• Received May's piano rental bill of $150 and set it aside for payment in June.
Use the information above to answer the following question. Assuming the company uses accrual basis accounting, what is net income for May?
A. $300.
B. $400.
C. $350.
D. $600.

Answer 1

In accrual basis accounting, the net income for May is $250 based on the given information.

Step-by-step explanation:

In accrual basis accounting, revenues are recognized when they are earned, regardless of when they are received, and expenses are recognized when they are incurred, regardless of when they are paid. Based on the given information, the revenue for May is $400 from cash payments and $100 on account, totaling $500. The expenses for May are $100 for April's piano rental bill and $150 for May's piano rental bill. Therefore, the net income for May is calculated as follows:

Net Income = Revenues - Expenses

Net Income = $500 - ($100 + $150) = $250.