Question

X Company is a service company and prepares monthly financial statements. In April, it billed customers $400,000 for services it provided; in May, it billed customers $369,000 for services it provided.

In May, the company received $282,000 from its April customers and $254,000 from its May customers.

Which of the following amounts will appear on X Company's May Income Statement and Statement of Cash Flows?

- Income Statement, $536,000; Statement of Cash Flows, $769,000
- both statements, $254,000
- Income Statement, $369,000; Statement of Cash Flows, $536,000
- Income Statement, $769,000; Statement of Cash Flows, $536,000
- both statements, $369,000
- Income Statement, $536,000; Statement of Cash Flows, $369,000

Answer 1

Answer = ( B ) Income Statement $ 369,000 : Statement of cash flows $ 536,000

Explanation :

Accrual Basis :

Accrual basis refers to all Revenues are to be recognized when Earned and All

Expenses are to be recognized when incurred.

Cash Basis :

Cash Basis refers to all Revenues are to be recognized when Cash is to be Received

and All Expenses are to be recorded when Cash is to be paid .

In Income statement records only all Revenues and Expenses related to current month

or Current Accounting period on the Accrual Basis

In this Problem , In Income statement ,Only May Month's Service provided

amount $ 369,000 is recognized on Accrual basis .

. Where as Cash flows Statements records all Receipts and Payments whether there are

Capital Nature or Revenue Nature and it also records all Receipts and Payments whether related

to Previous Month or Year , Current month or Year , or Following month or year on the Cash Basis

In this Problem , In Statement of Cash flows , All Revenues which are  Both April Month and May

Month is to be received in the Month of May. So, All Revenues Both April ($ 282,000)and

May ($ 254,000 ) should be recorded in the May month on Cash basis. is $ 536,000 {$282,000+$254,000}.