Question 1

(part 1) Differentiate between cash-basis and accrual-basis accounting.

(Part 2) Comparing cash and accrual basis accounting for expenses

Mrs. Singh pays her sons rent in advance. Last November 15th, she paid $1,500 for the rental of her sons room for the weeks beginning Jan 1st until April 16th, 2014. Calculate how much rent expense Mrs. Singh should record on March 31st under.

a. accrual basis? b. cash basis?

(Part 3) Comparing cash and accrual basis accounting for revenues

Tariqs Tax Services collect their fees at the end of the completed tax filing for their customers. In some cases, customers do not pay immediately upon receipt of the copy of the filing but request for a quotation and invoice for services after which they might take a month or two to pay. At the end of June, Tariq has collected 60% of the total $4,980 owed by customers for tax services completed.

Calculate how much fees Tariqs Tax Services should record under the

a. cash basis? b. accrual basis?

5. Applying the revenue recognition principle

Takiko Gym collects membership fees quarterly in at the beginning of each quarter. Members thus pay a total amount of $450 in January, April, July and October for three months of monthly membership fees in advance.

Using the Revenue Recognition Principle explain

1. how the fees collected should be recorded as revenue by Takiko Gym.
2. why the unearned revenue is considered a liability?

6. Applying the matching principle

Suppose on January 1, Antonios Tavern prepaid rent of $6,000 for the full year.

At June 30, how much rent expense should be recorded for the period January 1 through June 30?

7. Comparing cash and accrual basis accounting and applying the revenue recognition principle

Momentous Occasions is a photography business that shoots videos at college parties. The freshman class pays $1,000 in advance on March 3 to guarantee services for its party to be held on April 2. The sophomore class promises a minimum of $2,800 for filming its formal dance and actually pays cash of $4,100 on February 28 at the dance.

Answer the following questions about the correct way to account for revenue under the accrual basis:

1. Considering the $1,000 paid by the freshman class, on what date was revenue earned? Did the earnings occur on the same date cash was received?
2. Considering the $4,100 paid by the sophomore class, on what date was revenue earned? Did the earnings occur on the same date cash was received?