It’s Just Lunch is a nationwide service company that arranges lunch dates for clients. It’s Just Lunch collects cash up front for a package of dates. Suppose your group is opening an It’s Just Lunch office in your area. You must make some important decisions—where to locate, how to advertise, and so on—and you must also make some accounting decisions. For example, what will be the end of your business’s accounting year? How often will you need financial statements to evaluate operating performance and financial position? Will you use the cash basis or the accrual basis? When will you account for the revenue that the business earns? How will you account for the expenses?
Requirements
Write a report (or prepare an oral presentation, as directed by your professor) to address the following considerations:
1. Will you use the cash basis or the accrual basis of accounting? Give a complete explanation of your reasoning.
2. How often do you want financial statements? Why? Discuss how you will use each financial statement.
3. What kind of revenue will you earn? When will you record it as revenue?
4. Prepare a made-up income statement for It’s Just Lunch for the year ended December 31, 2015. List all the business’s expenses, starting with the most important (largest dollar amount) and working through to the least important (smallest dollar amount). Merely list the accounts. Dollar amounts are not required.