Cash versus accrual accounting
40.   Cash versus accrual accounting. Jack Block opens a tax and bookkeeping services business, Block’s Tax and Bookkeeping Services, on July 1, 2013. He invests $40,000 for all the com- mon stock of the business, and the firm borrows $20,000 from the local bank, promising to repay the loan on December 31, 2013, along with interest at 8% per year, or approximately
$133 per month (= [0.08 × $20,000]/12 months). The firm rents space on July 1 and pays
$6,000 for three months rent in advance, and leases office equipment for the year, prepay- ing $12,000 for six months rent. The firm hires an office assistant whom it will pay $72,000 per year with payments every two months, issuing the first paycheck on August 31. Finally, the firm pays cash for office supplies during July costing $370; a physical count at the end of July shows that $280 of office supplies are on hand. During July, Block’s Tax and Bookkeeping Services performs services and bills customers for $44,000. On July 31, 2013, customers had paid $13,000 of the amount  owed.
a.   What is income for Block’s Tax and Bookkeeping Services for July 2013:
(1)Â Â Â Applying cash-basis accounting.
(2)Â Â Â Applying accrual accounting
b.   How much cash on hand does Block’s Tax and Bookkeeping Services have as of  July 31, 2013? Why is the amount of cash on hand not a good representation of the firm’s performance during July?
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Posted 28 May 2017 11:05 AM
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A-----------nsw-----------er ----------- 1.----------- Ca-----------sh -----------Bas-----------is -----------acc-----------oun-----------tin-----------g: -----------Sal-----------es -----------Rev-----------enu-----------es -----------$13-----------,00-----------0 R-----------ent-----------(Of-----------fic-----------e) -----------($6-----------,00-----------0) -----------Ren-----------t(E-----------qui-----------pme-----------nt)----------- ($-----------12,-----------000-----------) O-----------ffi-----------ce -----------sup-----------pli-----------es -----------exp-----------ens-----------e (-----------$37-----------0) -----------Inc-----------ome-----------(Lo-----------ss)----------- ($-----------5,3-----------70)----------- -----------2. -----------Acc-----------rua-----------l B-----------asi-----------s o-----------f a-----------cco-----------unt-----------ing-----------: S-----------ale-----------s R-----------eve-----------nue-----------s $-----------44,-----------000----------- Re-----------nt(-----------Off-----------ice-----------) (-----------$2,-----------000-----------) R-----------ent-----------(Eq-----------uip-----------men-----------t) -----------($2-----------,00-----------0) -----------Sal-----------ari-----------es -----------Exp-----------ens-----------e (-----------$6,-----------000-----------) O-----------ffi-----------ce -----------sup-----------pli-----------es -----------exp-----------ens-----------e (-----------$90-----------) I-----------nte-----------res-----------t e-----------xpe-----------nse----------- ($-----------133-----------) I-----------nco-----------me(-----------Los-----------s) -----------$33-----------,77-----------7 ----------- b.----------- Co-----------mpu-----------tat-----------ion----------- of----------- th-----------e c-----------ash----------- on----------- ha-----------nd -----------tha-----------t B-----------loc-----------k's----------- Ta-----------x a-----------nd -----------boo-----------k k-----------eep-----------ing-----------
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