Question

Consider the following set of transactions occurring during the month of May for Bison Consulting Company. For each transaction, indicate the impact on

(1) the balance of cash,
(2) cash-basis net income, and
(3) accrual-basis net income for May. The first answer is provided as an example. (Negative amounts should be indicated by a minus sign.)
Impact on:
(A) Receive $1,500 from customers whowere billed for services in April.
(B) Provide $3,200 of consulting servicesto a local business. Payment is notexpected until June.
(C) Purchase office supplies for $400 onaccount. All supplies are used by theend of May.
(D) Pay $600 to workers. $400 is for work inMay and $200 is for work in April.
(E) Pay $200 to advertise in a localnewspaper in May.
Totals

Answer 1

(A) Receive $1,500 from customers who were billed for services in April.

(1) the balance of cash WILL INCREASE by $1500

(2) cash-basis net income WILL INCREASE by $1500

(3) accrual-basis net income for May WILL HAVE NO EFFECT

(B) Provide $3,200 of consulting services to a local business. Payment is not expected until June.

(1) the balance of cash WILL HAVE NO EFFECT

(2) cash-basis net income, WILL HAVE NO EFFECT

(3) accrual-basis net income for May WILL INCREASE by $3,200

(C) Purchase office supplies for $400 on account. All supplies are used by the end of May.

(1) the balance of cash WILL HAVE NO EFFECT

(2) cash-basis net income WILL HAVE NO EFFECT

(3) accrual-basis net income WILL REDUCE by $400 (expenses are outflows)

(D) Pay $600 to workers. $400 is for work in May and $200 is for work in April.

(1) the balance of cash WILL REDUCE by $600

(2) cash-basis net income, WILL REDUCE by $600

(3) accrual-basis net income WILL REDUCE by $400

(E) Pay $200 to advertise in a local newspaper in May.

(1) the balance of cash WILL REDUCE by $200

(2) cash-basis net income, WILL REDUCE by $200

(3) accrual-basis net income WILL REDUCE by $200

Step-by-step explanation:

For each transaction, indicate the impact on

(1) the balance of cash,

(2) cash-basis net income, and

(3) accrual-basis net income for May. The first answer is provided as an example. (Negative amounts should be indicated by a minus sign.)

Impact on:

(A) Receive $1,500 from customers who were billed for services in April.

(1) the balance of cash WILL INCREASE by $1500

(2) cash-basis net income WILL INCREASE by $1500

(3) accrual-basis net income for May WILL HAVE NO EFFECT

(B) Provide $3,200 of consulting services to a local business. Payment is not expected until June.

(1) the balance of cash WILL HAVE NO EFFECT

(2) cash-basis net income, WILL HAVE NO EFFECT

(3) accrual-basis net income for May WILL INCREASE by $3,200

(C) Purchase office supplies for $400 on account. All supplies are used by the end of May.

(1) the balance of cash WILL HAVE NO EFFECT

(2) cash-basis net income WILL HAVE NO EFFECT

(3) accrual-basis net income WILL REDUCE by $400 (expenses are outflows)

(D) Pay $600 to workers. $400 is for work in May and $200 is for work in April.

(1) the balance of cash WILL REDUCE by $600

(2) cash-basis net income, WILL REDUCE by $600

(3) accrual-basis net income WILL REDUCE by $400

(E) Pay $200 to advertise in a local newspaper in May.

(1) the balance of cash WILL REDUCE by $200

(2) cash-basis net income, WILL REDUCE by $200

(3) accrual-basis net income WILL REDUCE by $200