Question

The Johnny Flowers Law Firm prepays for advertising in the local newspaper. On January 1, the law firm paid $2,200 for six months of advertising. Johnny Flowers Law Firm recorded $2,200 in the Prepaid Advertising account. If Johnny Flowers Law Firm had recorded their expenses using the other method, how much advertising expense would they have recorded for the two months ending February 28? Enter this value as a positive number. Safe 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, Safe Home has collected $1,360 from cash-paying customers. Safe Home’s remaining customers owe the business $660. Safe Home recorded $1,360 of service revenue for the year. If Safe Home had recorded their service revenue using the other method, how much service revenue would they have recorded for the year? Splendid Occasions received $550 for services to be performed for the next 8 months on March 31 and recorded this transaction using the Unearned Revenue account. If Splendid Occasions had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?

Answer 1

Under Accrual basis, revenue or expenses is recognized when they incur irrespective of when cash is exchanged.

Under Cash basis, revenue or expenses is recognized when cash is exchanged.

1. Accrual basis

Other method $2,200

2 Cash basis

Other method $2,020

($660 + $1,360)

3. Accrual basis

Other method $550

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