Cuisine

Cuisine Catering completed the following selected transactions during May

May, 2016

2016:

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Requirement 1. Show whether each transaction would be handled as a revenue or an expense using both the cash basis and accrual basis accounting systems by completing the table provided.(Expenses should be shown inparentheses.) Also indicate the dollar amount of the revenue or expense. The May

May 1 transaction has been completed as an example. (Enter "0" for any transactions that do not affect revenues orexpenses.)

Amount of Revenue (Expense) for May

Cash Basis Amount

Accrual Basis Amount

Date

of Revenue (Expense)

of Revenue (Expense)

May 1

$

(2,700)

$

0

May 5

900

May 9

2000

May 14

4200

May 23

3300

May 31

rent

900

May 31

salary

1000

May 31

depr

70

Requirement 2. After completing thetable, calculate the amount of net income or net loss for Cuisine

Cuisine Catering under the accrual basis and cash basis accounting systems for May

May. (Use parentheses or a minus sign to indicate aloss.)

Cash Basis Amount

Accrual Basis Amount

Net income (loss)

Requirement 3. Considering your results from Requirement2, which method gives the best picture of the true earnings of Cuisine

Cuisine Catering? Why?

The

accrual basis

cash basis

gives the best picture of the true earnings of Cuisine

Cuisine Catering because revenues are recorded when

earned

paid

and expenses are recorded when

incurred

paid

, as dictated by the revenue recognition principle and the matching principle.

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