E3-14 Sweet Catering completed the following selected transactions during May, 2012

Price: $2.99

E3-14 Comparing accrual and cash-basis accounting, preparing adjusting

entries, and preparing income statements [15-25 min]

Sweet Catering completed the following selected transactions during May, 2012:

1-May	Prepaid rent for three months, $1,500.
5	Paid electricity expenses, $400.
9	Received cash for meals served to customers, $2,600.
14	Paid cash for kitchen equipment, $2,400.
23	Served a banquet on account, $3,000.
31	Made the adjusting entry for rent (from May 1).
31	Accrued salary expense, $1,400.
31	Recorded depreciation for May on kitchen equipment, $40.

Requirements

1. Prepare journal entries for each transaction.

2. Using the journal entries as a guide, show whether each transaction would be

handled as a revenue or an expense using both the accrual and cash basis by

completing the following table.

Date

Amount of Revenue (Expense) for May

Cash Basis Amount of

Revenue (Expense)

Accrual-Basis Amount of

Revenue (Expense)

3. After completing the table, calculate the amount of net income or net loss for

Sweet Catering under the accrual and cash basis for May.

4. Considering your results from Requirement 3, which method gives the best picture

of the true earnings of Sweet Catering? Why?