Heartstrings Gift Shoppe sells an assortment of gifts for any occasion. During October, Heartstrings started a Gift-of-the-Month program. Under the terms of this program, beginning in the month of the sale, Heartstrings would select and deliver a random gift each month, over the next 12 months, to the person the customer selects as a recipient. During October, Heartstrings sold 28 of these packages for a total of $11,496 in cash.

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Asked Sep 23, 2019
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Heartstrings Gift Shoppe sells an assortment of gifts for any occasion. During October, Heartstrings started a Gift-of-the-Month program. Under the terms of this program, beginning in the month of the sale, Heartstrings would select and deliver a random gift each month, over the next 12 months, to the person the customer selects as a recipient. During October, Heartstrings sold 28 of these packages for a total of $11,496 in cash.

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Expert Answer

Step 1

Accounting is done with two methods:

Cash basis accounting: Under the cash basis accounting all cash receipts for the period are considered as revenue and all the cash payments for the period are considered as expense and the net income is calculated.

Accrual basis accounting: Under accrual basis of accounting , the revenue and expenses are recorded accreting to their accrual for  the given period and cash receipts and payments are not considered to decide their accrual. The net income is determined using the accrued revenue and accrued expenses belonging to the given period.

Step 2

Calculate the revenue recognized for the month ...

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Total cash received on Revenue recognizedfor sale of 28 packages the month October No. of months S11,496 12 = S958

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