Question

Seashore Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Seashore Home has collected $2,840 from cash-paying customers. Seashore Home’s remaining customers owe the business $2,070. Seashore Home recorded $2,840 of service revenue for the year.

Required:
1. If Seashore Home had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?

Answer 1

The total service revenue that would have been recorded under the accrual basis is $4910.

Step-by-step explanation:

The business is following the cash basis of accounting, where only transactions involving cash receipt or payment are recorded.

The other method referred to here is the accrual method or accrual basis. The accrual or matching principle states that a particular periods revenues should be matched with that period's expenses and recorded in that period.

The revenue under accrual basis = Cash Sales + Credit sales

Cash sales = $2840

Credit sales = $2070

Total service revenue that would be recorded under accrual principle is,

Total service revenue = 2840 + 2070 = $4910