$2$:$4746$

learn$-$ap$-$southeast$-2-$prod$-$fleet$01-$xythos.content.blackboardcdn.com

$\frac{2}{8}$

Chapter $4$

Exercise $4\mathrm{.}2$

Cash versus accrual basis of accounting

Dave Drive, owner of Street Design Landscaping, engaged you to prepare financial statements for the year ended $30$ June $2024,$ on both the cash basis and the accrual basis. This was the end of the first year of operations, The following data are a summary of selected transactions that occurred during the year. Ignore GST$.$

Fees of $$320000$ were collected for services provided during the year to a number of City Councils.

There was $$36000$ in receivables at $30$ June $2024$ for services performed and invoiced but not yet received.

Interbank transfers of $$242000$ were made for salaries, rent, insurance and other expenses incurred during the year.

Salaries owing but not yet paid at year end amounted to $$3000.$

On $15$ June $2024,$ a City Council paid $$14000$ in advance for landscaping to be done during the next financial year.

Expenses of $$4000$ were prepaid $($not included in the $$242000)$ at $30$ June. Required

$($a$)$ Calculate profit under both the cash basis and the accrual basis.

$($b$)$ Explain how the following items would be reported in the business's statement of financial position under the accrual basis:

$($i$)$ the $$36000$ receivables

$($ii$)$ the unpaid salaries of $$3000$

$($iii$)$ the $$14000$ advance received on $15$ June

$($iv$)$ the cash payment of $$4000$ for prepaid expenses.