Revenue recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provide

Question

Revenue recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provides doorbell repair services to customers and began operations in February 2018. On March 4th, 2018, Ring The Bells, Inc. collected $2,400 in cash from customers for services performed in February 2018. On March 11th, Ring The Bells, Inc. provided $690 worth of services to customers, all of whom paid in cash. On March 25th, 2018 Ring the Bells provided additional services worth $3,470 on account to customers, which will not be collected until April.

(1pt) Using accrual-basis accounting, how much revenue would Ring the Bells record for March 2018? Briefly explain or show how you got your answer.

(1pt) Using cash-basis accounting, how much revenue would Ring the Bells record for March 2018? Briefly explain or show how you got your answer.

Expense recognition – accrual basis vs. cash basis: Ring The Bells, Inc. provides doorbell repair services to customers and began operations in February 2018. On March 2nd, 2018, Ring The Bells, Inc. paid $800 in cash to creditors for supplies purchased on account on February 1st and used in February 2018. On March 15th, Ring The Bells, Inc. paid $1,850 in cash to employees for work done March 1st-15th. On March 29th, 2018 Ring the Bells received a bill of $720 from the utility company for March utilities used which will not be paid until April.

(1pt) Using accrual-basis accounting, how much in expenses would Ring the Bells record for March 2018? Briefly explain or show how you got your answer.

(1pt) Using cash-basis accounting, how much in expenses would Ring the Bells record for March 2018? Briefly explain or show how you got your answer.

Explanation / Answer

Revenue Recognise

Sevices Performed Received money Amount

Feb 2018 March 4th 2018 2400

Mar 11, 2018 March 11th 2018 690

Mar 25, 2018 not received till April 3470

In Accrual Concept of Accounting Income to be recognise in accounting period from which relates rather than cash receipt so in accrual concept income recognise when service actual perform so in this case in mar 2018 on accrual basis service performed on mar 11 and mar 25 so in march revenue recognise 690 +3470 = 4160 , 2400 received in march but related to feb 2018 revenue when service actually performed.

In cash basis is not important when revenue recognise important is when revenue received so in mar 2018 to amount 2400+690 =3090 Received , Service perform on mar 25 amount not received in march

Expenses Recognise

Suppiles purchase Supplies payment made Amount

Feb 01 March 2, 2018 800

Mar 01-15 March 15,2018 1850

Mar 29,2018 Payment not made in march 720

In Accrual Concept of Accounting Expenses to be recognise in accounting period from which relates rather than cash payment so in accrual concept expenses recognise when supplies actual purchase so in this case in mar 2018 on accrual basis Supplies Purchase on mar 1 to mar 15 and mar 29 so in march expesnes recognise 1850 +720 = 2570 , 800 Payment in march but related to feb 2018 Expenses when Supplies actual purchase.

In cash basis is not important when Expenes recognise important is when Expenses paid so in mar 2018 to amount 800+1850 =2650 paid , Supplies purchase on mar 29 amount not paid in march

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