P2 - 3

Cut & Trim is a gardening service owned and managed by Simon Spade. The business operates as a sole proprietorship. The business began trading on 1 March 20X6 and the only accounting records that Simon kept for the first two months was a list of cash inflows and cash outflows.

However, after chatting with some friends who have studied Accounting at university, he realizes that the accrual basis of accounting will provide him with a better measure of performance.

The following transactions relate to the business entity during May 20X6:

3. A total of C2 000 was received from customers for services provided during the month.

4. An amount of C72 was paid for petrol used in the van and mowers during the month.

5. Wages of C800 were paid to employees during May, C200 of which was for time worked in the previous month.

6. On 1 May, an amount of C600 was paid for insurance for the period from 1 May 20X6 to 31 October 20X6.

7. On 1 May, an amount of C1 500 was received from customers in respect of gardening services to be provided evenly during the period from 1 May 20X6 to 31 July 20X6.

8. At the end of May, an amount of C150 owing to an advertising agency for services provided during May was unpaid.

9. At the end of May, customers owed C700 for services provided during the month.

10. On 31 May, Simon withdrew C750 from the business to pay personal living expenses.

You are required to:

For each transaction,

a. State the amount of cash received or paid during May 20X6.

b. State the accrual basis income or expense for May 20X6.

c. Provide a brief explanation of why the cash received or paid is different to the accrual basis income or expense.