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Cash Accounting and Accrual accounting

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? Indicate the income statement equation and define each element.
? Define accrual accounting and contrast it with cash basis accounting.

Mostert Music Company had the following transactions in March:
1. Sold instruments to customers for $10,000; received $6,000 in cash and the rest on account. The cost of the instruments was $7,000.
2. Purchased $4,000 of new instruments inventory; paid $1,000 in cash and owed the rest on account
3. Paid $600 in wages for the month
4. Received a $200 bill for utilities that will be paid in April.
5. Received $1,000 from customers as deposits on orders of new instruments to be sold to the customers in April.

Prepare two income statements show the Net income based on Cash accounting and Accrual Accounting.

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Solution Summary

The attached Word Document provides detailed explanations for both Cash and Accrual Accounting techniques.

The Income statement function is also defined and explained.

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Education
  • B. Sc., University of Nigeria
  • M. Sc., London South Bank University
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