QUESTION

You have recently opened a software consultancy firm. Below is a list of transactions for the month of August.

1. Collected fees $10 000 in August which includes $1 500 fees earned in July.

2. Earned $2 000 fees in August to be received in September.

3. Beginning supplies on hand in was $500 and further purchase of supplies in August amounted to $1,000. All supplies were bought on credit and supplies worth $600 still remains unused at the end.

4. Paid suppliers $800 cash in August which includes $200 for supplies bought in July.

5. Paid wages amounting to $2 000 which includes $300 earned in July. Another payment of $500 earned in August will be paid in September.

6. Bought office equipment worth $2 400 and paid $1 200 cash. The remaining balance will be paid in September. Equipment is estimated to have a useful life of 2 years after which it will become obsolete.

REQUIRED:

(i) Prepare an income statement for the month of August using the accrual basis. (5 marks)

(ii) Prepare an income statement for the month of August using the modified cash basis. (5 marks)