Reference no: EM13903960
TamaraNice set up a secretarial services business (TN Services) on 1 July 2013. Usually, Tamara collects $20 per hour for services provided on the completion of each day's work and pays for the maintenance of her computer equipment with cash. Tamara did an accounting subject at secondary school and so has kept her own accrual-based accounting records. At the end of the first year, Tamara produced the following unadjusted trial balance:
TN Services
Unadjusted Trial Balance
As at 30th June 2013
|
Cash at Bank
|
$2,550
|
|
|
Accounts Receivable
|
40
|
|
|
Computer Equipment
|
3,000
|
|
|
Motor Vehicle
|
24,000
|
|
|
TamaraNice, Capital
|
|
$19,000
|
|
TamaraNice, Drawings
|
17,570
|
|
|
Income
|
|
38,400
|
|
Telephone Expense
|
2,300
|
|
|
Supplies Expense
|
4,840
|
|
|
Repairs & Maintenance
|
2,560
|
|
|
Other Expenses
|
540
|
|
The following adjustments were required at the year-end:
1. Supplies on hand at year-end, $230
2. An account was received for repairs done to Tamara's computer equipment before year-end but not recorded, $270.
All calculations must be shown. Solutions provided without calculations will not receive marks. Ignore the GST in your answers.
Required:
a) Prepare an income statement for the year ended 30th June 2013 using accrual accounting.
b) Prepare an income statement for the year ended 30th June 2013 using cash accounting.
c) Tamara was not sure whether she could use cash accounting rather than accrual accounting for her business records. From the information provided, decide whether Tamara should use accrual or cash accounting, and explain to her the reasons for your decision.