Question

Mostert music company had the following transactions in march: sold music lessons to customers for $13,100; received $7,300 in cash and the rest on account. paid $650 in wages for the month. received a $300 bill for utilities that will be paid in april. received $4,700 from customers as deposits on music lessons to be given in april. required: based on the information above, prepare a cash basis and an accrual basis income statement.

Answer 1

To prepare a cash basis income statement, consider only cash transactions. The net income on cash basis is $6,650. For an accrual basis income statement, consider all revenues and expenses. The net income on accrual basis is $12,150.

Step-by-step explanation:

To prepare a cash basis income statement, we only consider the cash transactions that occurred in March:

• Revenue from music lessons: $7,300 (cash received)
• Expenses: $650 (wages paid)

So, the cash basis income statement would show a net income of $6,650.

To prepare an accrual basis income statement, we consider all revenues and expenses for the month:

• Revenue from music lessons: $13,100 (total sales)
• Expenses: $650 (wages paid)
• Expense for utilities: $300 (bill received)

So, the accrual basis income statement would show a net income of $12,150.