Question

Melody’s Piano School operations for the month of May were limited to the following transactions: Provided $650 of piano lessons to students who paid in cash. Provided $500 of piano lessons on account. Collected $375 from students who took piano lessons during April. Paid April’s piano rental bill of $250. Received May’s piano rental bill of $300 and set it aside for payment in June. Assuming the company uses accrual basis accounting, what is net income for May?

Answer 1

Answer:

$850 is the net income for May

Explanation:

Under the accrual basis of accounting, only revenues and expenses relating to May will be considered. All receipts and payments relating to April will not be included:

Piano lessons to students who paid in cash   + $650

Piano lessons on account                                + $500

May’s piano rental bill                                      - $300

Net income for May                                           $850

Answer 2

Net income as per accrual basis refers to such income, which is yet to be realized in the business, but is recorded for accounting purpose. So, the net income for Melody Piano school will be $850 for May.

What is Accrued Net Income?

An accrued net income of a business includes the transactions, which are already realized in cash, along with income which is not yet realized but is considered as good as cash for accounting purposes.

It is to be noted that the expenses under accrual basis are also recorded on the day they are liable for the business to be paid.

The net income for Melody's Piano classes for May will be computed by using the given info as,

$\rm Net\ Income= Cash\ Fees(+)Accrued\ Fees(-) Rental\ Bill\\ \\\rm Net\ Income= 650+500-350\\\\\rm Net\ Income= \ 850$

Hence, the net income for Melody Piano Classes for the month of May as per the accrual basis method of accounting is calculated as $850.

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