Question

Mostert Music Company had the following transactions in March:

Answer 1

Answer:

1. Cash income is $10,920

2. Net income is $12,995  

Explanation:

1. Cash basis income statement

A cash basis income statement refers to an income statement that records revenue for which cash has been received and expenses for which cash has been paid for in a particular period. Therefore, cash basis income statement is not compliant with the generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS).

The cash basis income statement for Mostert Music Company for March can therefore be prepared as follows:

                     Mostert Music Company

                Income Statement (Cash Basis)

                   For the month ended March

Particulars                                                            $            

Cash Revenue:

Cash received for music lesson sold               8,400

Deposit received from customers                    3,200  

Total Cash revenue                                           11,600

Cash Expenses:

Wages paid                                                         (680)                      

Cash income                                                     10,920    

2. Accrual basis income statement

An accrual basis income statement records revenues when they are earned and expenses when they incurred no matter when cash is received or paid. Therefore, an accrual basis income statement is compliant with GAAP or IFRS.

The accrual basis income statement for Mostert Music Company for March can therefore be prepared as follows:

        Mostert Music Company

   Income Statement (Accrual Basis)

       For the month ended March

Particulars                                            $            

Revenue:

Total sales to customers                14,000

Expenses:

Wages                                                (680)

Utilities bill                                          (325)    

Net income                                      12,995