Elders Consulting had the following selected transactions in August:

Aug 1 Prepaid insurance for August through December, $500.

4 Purchased software for cash, $800.

5 Performed services and received cash, $700.

8 Paid advertising expense, $500.

11 Performed service on account, $3,500.

19 Purchased computer on account, $1,700.

24 Collected for August 11 service.

26 Paid account payable from August 19.

29 Paid salary expense, $800.

31 Adjusted for August insurance expense (see Aug 1).

31 Earned revenue of $600 that was collected in advance back in July.

Requirements

1. Show how each transaction would be handled using the cash basis and the 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 August 24 to explain.