1. On April 1, Year 1, Ivy began operating a service proprietorship with an initial cash investment of $1,000. The proprietorship provided $3,200 of services in April and received full payment in May. The proprietorship incurred expenses of $1,500 in April, which were paid in June. During May, Ivy drew $500 against her capital account.
　　What was the proprietorship's income for the two months ended May 31, Year 1, under the following methods of accounting?
 
 

Cash-Basis

Accrual-Basis

A.

$1,200

$1,200

B.

$2,700

$1,200

C.

$1,700

$1,700

D.

$3,200

$1,700


 
　　Explanation
　　Choice "D" is correct. $3,200 cash-basis income; $1,700 accrual-basis income.
 
  

Accrual Adjustments

 
 

Cash Basis

Dr

Cr

Accrual Basis

Statements of rev/exp or income

    

Service billings

3,200

  

3,200

Expenses incurred

-

1,500

 

1,500

Income - 2 mos. 5-31-Year 1

3,200

  

1,700

Balance Sheet

    

Accrued expenses payable

  

1,500

 
        
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