Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881



Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem

Brief Exercise 3-29

Revenue and Expense Recognition

Lauhl Corporation provides janitorial services to several Office buildings. During April, Lauhl engaged in the following transactions:

  1. On April 1, Lauhl received from Metro Corporation to provide cleaning services over the next 6 months.
  2. On April 5, Lauhl purchased and received S8,500 of supplies on credit from Eagle Supply Company. During the month, Lauhl paid $5,000 to Eagle and used Sl,300 of the supplies.
  3. On April 20, Lauhl performed one-time cleaning services of $2,500 for Jones Company. Jones paid Lauhl the full amount on May 10.
  4. On April 30, Lauhl paid employees wages of $3,400. An additional $850 was owed to employees for work performed in April.


Calculate the amount of net income that Lauhl should recognize in April under (1) cash-basis accounting and (2) accrual-basis accounting.

To determine

Concept Introduction:

Accounting is an art of recording, classifying, analyzing and summarizing the financial statement to produce meaningful information and reports.

Accounting is done with two methods as follows:

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

Accrual Basis accounting: Under the accrual basis, 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 calculated using the accrued revenue and accrued expenses belonging to the particular period.

To Calculate:

The net income under and Cash basis and Accrual basis of accounting.


The net income under and Cash basis and Accrual basis of accounting is calculated as follows:

    Lauhl Corporation
    Net Income
    #Cash Basis Accrual Basis
    a $ 24,000 $ 4,000

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