Prairies Consultants Inc. had the following selected transactions in August 2017: Aug. 1 Prepaid insurance for August
Prairies Consultants Inc. had the following selected transactions in August 2017:
Aug. 1 Prepaid insurance for August through December, $1,000
4 Purchased software for cash, $800
5 Performed service and received cash, $900
8 Paid advertising expense, $300
11 Performed service on account, $3,000
19 Purchased computer on account, $1,600
24 Collected for the August 11 service
26 Paid account payable from August 19
29 Paid salary expense, $900
31 Adjusted for August insurance expense (see Aug. 1)
31 Earned revenue of $800 that was collected in advance in July
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 August. Journal entries are not required. Use the following format for your answer, and show your computations. Assume depreciation expense of $30 for software and $30 for the computer.
Prairies Consultants Inc.
Amount of Revenue (Expense) for August 2017
Date ................................................. Cash Basis............... Accrual Basis
2. Compute August income (loss) before tax under each accounting method.
3. Indicate which measure of net income or net loss is preferable. Use the transactions on August 11 and 24 to explain.