Question

What is the net income for Melody's Piano School for the month of May, considering the provided transactions and using the accrual basis of accounting?

$340 of piano lessons provided on account.
$450 of piano lessons provided to students who paid in cash.
$255 collected from students who took piano lessons in April.
Paid April's piano rental bill of $150.
Received May's piano rental bill of $200, set aside for payment in June.

Answer 1

The net income for Melody's Piano School for the month of May, considering the provided transactions and using the accrual basis of accounting, is $640.

Step-by-step explanation:

In order to determine the net income for Melody's Piano School in May using the accrual basis of accounting, we need to consider both revenue earned and expenses incurred during the month. First, we account for the revenue earned by summing the piano lessons provided on account and those provided to cash-paying students. The lessons provided on account amount to $340, while the cash transactions total $450. Adding these, we get a total revenue of $790.

Next, we consider the collections from students who took piano lessons in April, which amounts to $255. This needs to be subtracted from the total revenue since it pertains to the previous month. Therefore, the adjusted revenue for May is $790 - $255 = $535.

Moving on to expenses, Melody's Piano School paid April's piano rental bill of $150 during May, which needs to be deducted from the adjusted revenue. This leaves us with $535 - $150 = $385.

Finally, the piano rental bill for May of $200, set aside for payment in June, is not considered in May's net income calculation. Therefore, the net income for Melody's Piano School for the month of May is $385.

In conclusion, by accounting for both revenue and expenses, the net income is $385 for May, reflecting the financial performance of Melody's Piano School during that period.

Answer 2

Melody's Piano School's net income for May is $640, considering $790 revenue (including $340 on account and $450 cash) and deducting $150 for April's piano rental.

Step-by-step explanation:

In May, Melody's Piano School follows the accrual basis of accounting, which recognizes revenue when earned and expenses when incurred, irrespective of the actual cash flow. The total revenue for the month is $790, comprising $340 from piano lessons provided on account and $450 from cash payments. This revenue is recognized in May, adhering to the accrual principle. To calculate net income, we deduct expenses incurred during the month.

Expenses include the payment of April's piano rental bill ($150), which aligns with the accrual basis by recognizing the expense when incurred. As a result, the net income for May is $640 ($790 - $150). This methodology ensures a more accurate depiction of financial performance, emphasizing the matching principle.

The matching principle dictates that expenses should be recognized in the same period as the revenue they help generate. In this case, recognizing the revenue from piano lessons in May and the corresponding piano rental expenses provides a clearer picture of the business's profitability during that specific period. Melody's Piano School's net income of $640 reflects the true economic activity in May, offering valuable insights for decision-making and financial analysis.