Question

Hensley Painting Company painted four houses in June at $500 each. At the end of June, three homeowners had paid Hensley cash for the jobs. Under the accrual basis, what amounts will be reported on the income statement and the statement of cash flows for June?

Income Statement ... Statement of Cash Flows

a. ​$2,000 ... $2,000
b. ​$500 ... $500
c. ​$2,000 ... $1,500
d. ​$1,500 ... $1,500

Answer 1

Hensley Painting Company reports $2,000 on the income statement under the accrual basis as that is the revenue earned from painting four houses. However, on the statement of cash flows, they report $1,500, which is the actual cash received from three homeowners. The correct amounts are $2,000 for the income statement and $1,500 for the statement of cash flows.

Step-by-step explanation:

Under the accrual basis of accounting, revenues are reported on the income statement when they are earned, not necessarily when the cash is received. Hensley Painting Company painted four houses in June at $500 each, which amounts to a total of $2,000 ($500 x 4) in revenue earned in that month, regardless of whether the cash has been received. Therefore, $2,000 will be reported on the income statement for June.

In contrast, the statement of cash flows only reflects actual cash transactions. Since Hensley Painting Company received cash from three homeowners, they received $1,500 ($500 x 3) in cash. Therefore, $1,500 will be reported on the statement of cash flows for June.

Hence, the correct answer to the question about the amounts that will be reported on the income statement and statement of cash flows for June is option c: $2,000 ... $1,500.