Urban Consulting, a building consulting firm has just started its business. The owner of the firm...
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Urban Consulting, a building consulting firm has just started its business. The owner of the firm engaged you to prepare yearly financial statements for their first year ended 30 June 2020 on both the cash basis and the accrual basis. You have been provided with the following selected data for the year. 1. During the year, cash payments of $186,560 were made for salaries and other expenses incurred during the period. 2. Salaries owing to employees but not yet paid amount to $7,040. 3. Insurance of $10,560 that will cover the next financial year was prepaid at 30 June. 4. During the year, a total of $220,000 consulting fees was collected for services provided. 5. There were $14,080 in receivables at 30 June 2020 for services performed on credit. 6. On 20 June 2020, a client paid $5,280 in advance for services to be rendered during the next financial year. Required: a. Calculate profit under both the cash basis and the accrual basis. (5 marks) b. Explain in your own words why the profits calculated above are not the same. Which financial statements assumption does this relate to? (2 marks) Urban Consulting, a building consulting firm has just started its business. The owner of the firm engaged you to prepare yearly financial statements for their first year ended 30 June 2020 on both the cash basis and the accrual basis. You have been provided with the following selected data for the year. 1. During the year, cash payments of $186,560 were made for salaries and other expenses incurred during the period. 2. Salaries owing to employees but not yet paid amount to $7,040. 3. Insurance of $10,560 that will cover the next financial year was prepaid at 30 June. 4. During the year, a total of $220,000 consulting fees was collected for services provided. 5. There were $14,080 in receivables at 30 June 2020 for services performed on credit. 6. On 20 June 2020, a client paid $5,280 in advance for services to be rendered during the next financial year. Required: a. Calculate profit under both the cash basis and the accrual basis. (5 marks) b. Explain in your own words why the profits calculated above are not the same. Which financial statements assumption does this relate to? (2 marks)
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Answer Solution a Particulars Cash Basis Accrual Basis Consulting Fee ... View the full answer
Related Book For
Financial Accounting and Reporting
ISBN: 978-0273744443
14th Edition
Authors: Barry Elliott, Jamie Elliott
Posted Date:
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