Question 6 Part (b) (4 marks)

1. The General Manager of Beautiful Bottle is a bit confused about how to apply the accrual basis approach. Explain to the General Manager in your own words when sales made by Beautiful Bottle can be recognised as Income if Beautiful Bottle uses the accrual basis approach.

(2 marks)

2. On the 1st May 2020, Beautiful Bottle paid $24 000 for rent for the coming three months. The owner of Beautiful Bottle would like to know which of the following journals she should use if she was using the cash basis approach. Record the letter of the correct journal in the box below.

1. 01/05/20 dr Cash at Bank 24 000

cr Prepaid Rent 24 000

(to recognise rent paid)

2. 01/05/20 dr Rent Expense 24 000

cr Prepaid Rent 24 000

(to recognise rent paid)

3. 01/05/20 dr Prepaid Rent 24 000

cr Cash at Bank 24 000

(to recognise rent paid)

4. 01/05/20 dr Rent Expense 24 000

cr Cash at Bank 24 000

(to recognise rent paid)