Chapter 3, Problem 3.58AP

Group A

LO 1

(Learning Objective 1: Explain how accrual accounting differs from cash-basis accounting) Berkley Consulting had the following selected transactions in July:

July 1	Prepaid insurance for July through September, $3,900.
4	Purchased office furniture for cash, $3,000.
5	Performed services and received cash, $1,800.
8	Paid advertising expense, $300.
11	Performed service on account, $3,100.
19	Purchased computer on account, $1,600.
24	Collected for July 11 service.
26	Paid account payable from July 19.
29	Paid salary expense, $1,100.
31	Adjusted for July insurance expense (see July 1).
31	Earned revenue of $400 that was collected in advance back in June.
31	Recorded July depreciation expense on all fixed assets, $408.

Requirements

1. 1. Show how each transaction would be handled (in terms of recognizing revenues and expenses) using the cash basis and the accrual basis
2. 2. Calculate July income (loss) before tax under each accounting method.
3. 3. Indicate which measure of net income or net loss is preferable. Use the transactions on July 11 and July 24 to explain.