Question

Hikaru Sulu owns and operates a small carpet cleaning business. During May, he had the following activity:
i. Mr. Sulu charged customers $10,800 for cleaning carpets during May. He collected
$8,500 of the amount charged. The remainder is due in June.
ii. Mr. Sulu signed a contract with a condominium association to clean carpets in the complex. Work is to begin in mid-June. Mr. Sulu received a $3,500 deposit for the work.
iii. He collected $2,150 for carpet cleaning he did in March and April.
iv. Mr. Sulu purchased supplies during the month for $1,500. He paid $800 in cash and the remainder must be paid within 60 days. All the supplies purchased during May were used up by month's end.
v. Mr. Sulu paid $1,200 for supplies that he purchased and used in April.
vi. Mr. Sulu's employee received $2,000 for his work. Of that amount, $1,800 was for work done in May and $200 was owed to him at the end of April. Mr. Sulu owes the employee $700 for work done in May.
vii. Mr. Sulu incurred and paid $1,600 for other costs incurred for May.
viii. Mr. Sulu estimates depreciation of $500 for the month on his equipment, tools, and vehicle.

Required:
Prepare income statements for Mr. Sulu's business for May using cash and accrual accounting. Explain why the two methods result in different amounts of income. Which statement do you think gives a better indication of how the business performed? Do you think the business was successful in May? Explain.



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  • CreatedFebruary 26, 2015
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