Wonderful Widget Company had the following transactions in June:
1. Sold Widgets to customers for $50,000; received $22,000 in cash and the rest on account.
The cost of the Widgets was $27,000.
1. Purchased $40,000 of new Widget inventory; paid $7,000 in cash and owed the rest on account.
2. Paid $5,000 in wages for the month.
3. Received a $1,500 bill for June utilities that will be paid in July.
4. Received $2,000 from customers as payment on accounts that existed at the beginning of June.
5. Engaged a lawyer to help collect on accounts. The lawyer provided legal services in May valued at $300, in June valued at $500, and July valued at $600.
You set up payment terms to pay your legal bills in full in the month following the service.
The solution explains how to prepare a cash basis and accrual basis income statement.