Question

Question 5 Academic Consultants Inc. had the following selected transactions in August 2016: Aug. 1 Prepaid insurance for August through December, $1,000 4 Purchased software for cash, $800 5 Performed service and received cash, $900 8 Paid advertising expense, $300 11 Performed service on account, $3,000 19 Purchased computer on account, $1,600 24 Collected for the August 11 service 26 Paid account payable from August 19 29 Paid salary expense, $900 31 Adjusted for August insurance expense (see Aug 1) 31 Earned revenue of $800 that was collected in advance in July Show how each transaction would be handled using the cash basis and the accrual basis. Under each column, give the amount of revenue or expense for August. Journal entries are not required. Use the following format for your answer, and show your computations. Academic Consultants Inc. Amount of Revenue (Expense) for August 2016 Date Cash Basis Accrual Basis Aug 1 Revenue/(Expense) Amount Revenue/(Expense) Amount Compute August income (loss) before tax under each accounting method Explain which measure of net income or net loss is preferable.

Answer 1