Cash versus accrual basis of accounting. Argenti Corporation began operations on January 1, Year 6. The firm's cash account revealed the following transactions for the month of January.

The following information relates to Argenti Corporation as of January 31, Year 6:
(1) Customers owe the firm $7,500 from sales made during January.
(2) The firm owes suppliers $4,400 for merchandise purchased during January.
(3) Unpaid utility bills total $760, and unpaid salaries total $2,590.
(4) Merchandise inventory on hand totals $7,200.

a. Prepare an income statement for January, assuming that Argenti Corporation uses the accrual basis of accounting and recognizes revenue at the time it sells goods to customers.

b. Prepare an income statement for January, assuming that Argenti Corporation uses a cash basis of accounting.

c. Which basis of accounting do you believe provides a better indication of the operating performance of the firm during January? Why?
31. Cash versus accrual basis of accounting. Management Consultants, Inc.. opens a consulting business on July 1 , Year 2. Roy Bean and Sarah Bower each contribute $5,000 cash for shares of the firm's common stock. The corporation borrows $6,000 from a local bank on August 1 . Year 2. The loan is repayable on July 3 1 . Year 3, with interest at the rate of 9 percent per year.
The firm rents office space on August 1, paying two months" rent in advance. It pays the remaining monthly rental fees of $1,600 per month on the first of each month, beginning October 1. The firm purchases office equipment with a four-year life for cash on August 1 for $12,000.

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Date Transaction Amount Cash Receipts Jan. 1 Investment by Mary Argenti for 100 percent of Argenti Corporation's Common Stock $50,000 Jan. 1 Loan from Upper Valley Bank, due June 30, Year 6, with interest at 6 percent per year 20,000 Jan. 15 Advance from a customer for merchandise scheduled for delivery in February. Year 6... 800 Jan. 1-31 Sales to customers.. 40.000 Cash Disbursements Jan. 1 Rental of retail space at a monthly rental of $2,500 (5.000) Jan. 1 Purchase of display equipment (five-year life, zero salvage value) (30,000) Jan. 1 Premium on property and liability insurance for coverage from January 1 to December 31, Year 6 (2,400) Jan. 15 Payment of utility bills (850) Jan. 16 Jan. 2-31 Purchase of merchandise Payment of salaries. Balance, January 31, Year 6 (2,250) (34,900) $35.400