Determining Difference in Net Profit under Cash System and Accrual System of Accounting.
Jain Real Estate Company began operations on April 1, 20X2. The following transactions took place in the first month of the company’s operations:
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April 1 5 7 9 16 19 24 28 30 |
Began business by depositing ` 20,000 in bank in the company’s bank account in exchange for 2,000 shares. Paid three month’s office rent in advance, ` 3,600. Bought office supplies for cash, ` 610. Received fees for services provided, ` 9,200. Paid assistant’s salary for the first fortnight, ` 1,600. Billed customers for services provided, ` 9,700. Paid telephone bill for the month, ` 470. Received advance payments from customers, ` 2,600. Received but not paid electricity bill, ` 130. |
Required
1. Prepare journal entries for the transactions according to the cash system.
2. Prepare journal entries for the transactions according to the accrual system. Prepare adjusting entries for the following items:
- The inventory of supplies on April 30 was `180
- The salary for the second fortnight was ` 1,600.
3. Compute the net profit under the cash system and the accrual system.