LO 1 P3-59A.(Learning Objective 1: Explain how accrual accounting differs from cash-basis accounting)Masters Consulting had the following selected transactions in October:

Oct.1 Prepaid insurance from Oct to Dec, $3,900

4 Purchased office furniture for cash, $4,500

5 Performed services and received cash, $1,000

8 Paid advertising expenses, $500

11 Performed service on account, $3,200

19 Purchased computer on account, $1,900

24 Collected for Oct 11 service

26 Paid account payable for from Oct 19

29 Paid salary expense, $800

31 Earned revenue of $800 that was collected in advance back in Sept

31 Recorded Oct depreciation expense on all fixed assets, $460

Requirements:

1. Show how each transaction would be handled (in terms of recognizing revenues and expenses) using the cash basis and the accrual basis.

2. Compute October income (loss) before tax under each accounting method. Indicate which measure of net income or net loss is preferable.

3. Use the transactions on October 11 and October 24 to explain.