Reference no: EM132515266
Question - Fred's Catering had the following selected transactions during May 2018:
May 1 Received $800 in advance for banquet to be served later
May 5 Paid electricity expenses, $700
May 9 Received cash for 2 days sales, $2,000
May 14 Purchased 2 food warmers, $1,800
May 23 Served a banquet, receiving note receivable, $700
May 31 Accrued salary expense, $900
May 31 Prepaid $3,000 building rent for June and July
Required -
1. Show how each transaction would be handled using the cash basis and the accrual basis. Under each column, give the amount of revenue or expense for May. Journal entries are not required. Use the following format for your answer, and show your computations. Ignore depreciation.
2. Compute income (loss) before tax for May under the two accounting methods.
3. Which method better measures income and assets? Use the last transaction to explain.