As the accountant of Curtains Pty Ltd,you are preparing the financial statements for the month of August 2013.The assistant accountant gives you the following information regarding some transactions that he thinks may have an impact on the financial statements:
A.On 1^st August 2013,Curtains paid $2000 for a 2-month building insurance policy covering the months of August and September
B.The next payment date for employee wages and salaries is 3^rd September 2013.
C.Curtains Pty Ltd earned $300 interest income for the month of August that has not been received in cash.
D.The company depreciates its $25 000 equipment over 5 years using the straight-line method.
E.One of the clients paid an $8000 deposit to Curtains on 15 August for some works that will commence in September.The rest of the invoice amounting to $12 000 is paid on 28 September.
F.At the beginning of August,Curtains Pty Ltd paid $6000 for 6 months rent in advance.

\underline{Required}

a.As Curtains is using accrual accounting system,determine if the transactions above are accrued income,income received in advance,accrued expense,or prepaid expense.
b.You are trying to explain the difference between cash and accrual accounting to the assistant accountant.Compare how transaction no.1 and 5 above are recorded under cash and accrual accounting during August and September 2013,and show how profits are calculated under both accounting systems.

The Income Statement

Multiple Choice

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