Question

Seashore Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Seashore Home has collected $1,460 from cash-paying customers. Seashore Home’s remaining customers owe the business $1,810. Seashore Home recorded $1,460 of service revenue for the year.

If Seashore Home had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?

Answer 1

Answer:

The service revenue for the year under accrual basis is $3270.

Explanation:

The Seashore Home currently uses the cash basis system to record sales which require Seashore to record only the sales that have been paid for. The other method to record transactions is using the accrual basis. The accrual basis requires an entity to record revenues and expenses in the period in which they occured and are relevant to. Thus under accrual basis, sales made in a year, whether cash or credit, will be recorded as sales for that year.

Following accrual basis, the Service revenue for Seashore will be:

Service revenue = 1460 + 1810 = $3270