Question

You have recently opened a software consultancy firm. Below is a list of transactions for the month of August. Earned $2 000 fees in August to be received in September. 3. Beginning supplies on hand in was $500 and further purchase of supplies in August amounted to $1,000. All supplies were bought on credit and supplies worth $600 still remains unused at the end.

4. Paid suppliers $800 cash in August which includes $200 for supplies bought in July.

5. Paid wages amounting to $2 000 which includes $300 earned in July.

Another payment of $500 earned in August will be paid in September.

6. Bought office equipment worth $2 400 and paid $1 200 cash.

The remaining balance will be paid in September. Equipment is estimated to have a useful life of 2 years after which it will become obsolete. REQUIRED:

Prepare an income statement for the month of August using the accrual basis.

Prepare an income statement for the month of August using the modified cash basis.

Answer 1

a. Income statement (Accrual basis)

Revenues

Fees: $2000

Total Revenues: $2000

Expenses

Supplies on hand: $500

Purchase of supplies: $1000

Supplier salaries $800

Wages: $2000

Furniture: $100

Total Expenses: $4400

Net Income: -$2400

b. Income statement (modified cash basis)

Revenues

Fees: $0

Total Revenue: $0

Expenses:

supplies on hand: $500

Purchase on supplies: $400

supplier salaries: $600

Wages: $1300

Furniture: $50

Total Expenses: $2850

Net Income: -$2850