[B]M3-2 Reporting Cash Basis versus Accrual Basis Income Mostert Music Company had the following transactions in March:
a. Sold instruments to customers for $10,000; received $6,000 in cash and the rest on account.
The cost of the instruments was $7,000.
b. Purchased $4,000 of new instruments inventory; paid $1,000 in cash and owed the rest on
account.
c. Paid $600 in wages for the month.
d. Received a $200 bill for utilities that will be paid in April.
e. Received $1,000 from customers as deposits on orders of new instruments to be sold to the customers in April.
Cash basis accounting
Revenues: $7,000
Cash Sales $6,000 ($6,000 from cash paid in (a))
Customer Deposits $1,000 ($1,000 cash paid in (e))
Expenses: ($1,600)
Inventory Purchases ($1,000)($1,000 inventory purchased in (b))
Wages paid ($600)($600 wages paid in (c))
Cash Income: $5,400