Belinda Bambrick recently began a business selling costume jewellery from a cart in a local mall. During November Belinda had cash sales to customers of \($4,150\), and \($700\) of credit sales. The cost of the merchandise sold during November was \($1,750\). All of the inventory sold during November was bought and paid for in October. In late November Belinda took delivery of new jewellery for which she paid \($2,500\) in cash.

None of this new jewellery was sold in November. During November Belinda collected

\($1,000\) that was owed from customers who purchased merchandise on credit in September and October. Belinda hired a friend to work on the cart when she wasn’t able to do so. During November she paid the friend \($850\) cash, which included \($150\) owed for work done in October. At the end of November she owed the friend another

\($200\) for work done in November. During November Belinda paid \($500\) cash to the mall manager to allow her to operate her cart during November and December. In early November she also took out a small ad in a local newspaper at a cost of $75.

The ad will be for paid for in December.

Required:

Prepare income statements for Belinda’s business for November using cash and accrual accounting. Explain why the two methods result in different amounts of income. Also calculate the gross margin for the business under the accounting methods.