Question

During June, Thuy Bui’s business performed services for a specific customer for which the fee was $5,000. Payment was received in the following month July.

Required:

1. Was the revenue earned in June or July? How is profit determined under the cash basis of accounting and the accrual basis of accounting?

2. What journal entries should be recorded under accrual accounting in June and July

3. What journal entries should be recorded under cash accounting in June and July?

Answer 1

a) Revenue was earned in month of june, as services were performed in month of june and the corresponding revenue is earned in month of services performed.

Cash basis of accounting records thetransaction when actual cash is received that is revenue is recorded in the month when cash is received.So profit is determined on the basis of cash received or paid.

Under accrual basis of accounting revenue or expense are recorded when they are actually earned or incurred that is when the services are performed and actually the expense is incurred.That is profit is determined on the basis of actual earning and not related to cash.

b)

Journal entry

Date	General Journal	Debit	Credit
June	Accrued revenue	$5,000
	Revenue		$5,000
July	Cash	$5,000
	Accrued revenue		$5,000

Under accrual basis revenue is recorded as it is eanred so in month of june revenue recorded and corresponding accrued revenue debit which is an asset and would be reversed in month of july when cash is received

c)

Date	General Journal	Debit	Credit
June	No entry	$0	$0
July	Cash	$5,000
	Revenue		$5,000

Under cash accounting revenue is recorded when actually cash is received and no entry is required when the services are performed.