Academic Consultants Inc. had the following selected transactions in August 2016:
Prepaid insurance for August through December, $1,000
Purchased software for cash, $800
Performed service and received cash, $900
Paid advertising expense, $300
Performed service on account, $3,000
Purchased computer on account, $1,600
Collected for the August 11 service
Paid account payable from August 19
Paid salary expense, $900
Adjusted for August insurance expense (see Aug 1)
Earned revenue of $800 that was collected in advance in July
- 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.
Academic Consultants Inc.
Amount of Revenue (Expense) for August 2016
- Compute August income (loss) before tax under each accounting method
- Explain which measure of net income or net loss is preferable.