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Sweet Catering completed the following selected transactions during May 2016:
Sweet Catering completed the following selected transactions during May 2016:May 1: Prepaid rent for three months, $1,200
May 5: Received and paid electricity bill, $220
May 9: Received cash for meals served to customers, $2,230
May 14: Paid cash for kitchen equipment, $2,430
May 23: Served a banquet on account, $2,980
May 31: Made the adjusting entry for rent (from May 1).
May 31: Accrued salary expense, $3,770
May 31: Recorded depreciation for May on kitchen equipment, $770
If Sweet Catering had recorded transactions using the Cash method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.
If Sweet Catering had recorded transactions using the Accrual method, how much net income (loss) would they have recorded for the month of May? If there is a loss, enter it with parentheses or a negative sign.
Final answer:Sweet Catering would have recorded a net loss of $420 using the Cash method, and a net income of $1,050 using the Accrual method for the month of May.Explanation:To calculate the net income or loss for Sweet Catering for the month of May using both the Cash and Accrual accounting methods, we need to understand the revenue and expenses recorded during the month.Under the Cash method, only transactions involving actual cash flows are considered. Here are the cash movements:Prepaid rent (expense, but not in May's cash flow): -$0Electricity bill (expense): -$220Cash from meals served (revenue): +$2,230Kitchen equipment (expense, cash outflow): -$2,430Banquet served on account (revenue, but not in May's cash flow): +$0Salary expense accrued (expense, but not in May's cash flow): -$0Depreciation (expense, but a non-cash item): -$0Net income (loss) under Cash method = ($2,230 revenue) - ($220 electricity bill + $2,430 kitchen equipment) = -$420Under the Accrual method, revenues and expenses are recorded when they are earned or incurred, regardless of when the cash is exchanged. Here are the transactions:Prepaid rent: One month's worth = -$400Electricity bill: -$220Cash from meals served: +$2,230Kitchen equipment: -$0 (capital expenditure, not an expense)Banquet served on account: +$2,980Salary expense accrued: -$3,770Depreciation on kitchen equipment: -$770Net income (loss) under Accrual method = ($2,230 + $2,980 revenue) - ($220 electricity bill + $400 rent + $3,770 salary + $770 depreciation) = $1,050...