Greenfingers Ltd opened a gardening consulting company on 1 August 2016 with eac

Question

Greenfingers Ltd opened a gardening consulting company on 1 August 2016 with each of the two owners cash. A one-year bank loan of $40 000 at 12 per cent per annum was obtained from the principal and interest to be repaid at the end of the loan. An insurance policy for 12 months bank on 1 August, with was taken out on 1 August 2016 for $600. Three months' office rental for $900 was paid in advance on 1 August 2016. Consulting revenue of $10000 was earned during the month, but $6000 had not been received at the end of August. A truck that cost $36000 was paid for in cash on 1 August. It had an expected life of three years and zero residual value. Cash expenses during the month were: wages, $600; other expenses, $400. Unpaid bills a month's end were: electricity, $100; wages, $200 Prepare an income statement for August 2016 under (a) an accrual basis and (b) a cash basis of accounting

Explanation / Answer

Income statement for August 2016 (Accrual basis) Sales Revenue $10,000.00 Less : Expenses - Wages $800.00 - Other Expenses $500.00 - Depreciation $1,000.00 - Office Rent $300.00 - Insurance $50.00 - Interest on Loan $400.00 Total Expenses $3,050.00 Net Income $6,950.00 Income statement for August 2016 (Cash basis) Sales Revenue $4,000.00 Less : Expenses - Wages $600.00 - Other Expenses $400.00 - Depreciation $1,000.00 - Office Rent $900.00 - Insurance $600.00 - Interest on Loan $0.00 Total Expenses $3,500.00 Net Income $500.00

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