On 2010 June 1, Richard Cross opened a swimming pool cleaning and maintenance service, Cross Pool Company. He vaguely recalled the process of making journal entries and establishing ledger accounts from a high school bookkeeping course he had taken some years ago.
At the end of June, he prepared an income statement for the month of June, but he had the feeling that he had not proceeded correctly. He contacted his brother, John, a recent college graduate with a major in accounting, for assistance. John immediately noted that his brother had kept his records on a cash basis.
June 1 Received cash of USD 28,000 from various customers in exchange for service agreements to clean and maintain their pools for June, July, August, and September.
5 Paid rent for automotive and cleaning equipment to be used during the period June through September, USD 8,000. The payment covered the entire period.
8 Purchased a two-year liability insurance policy effective June 1 for USD 12,000 cash.
10 Received an advance of USD 9,000 from a Florida building contractor in exchange for an agreement to help service pools in his housing development during October through May.
16 Paid salaries for the first half of June, USD 8,400.
17 Paid USD 900 for advertising to be run in a local newspaper for two weeks in June and four weeks in July.
19 Paid the rent of USD 24,000 under a four-month lease on a building rented and occupied on June 1.
26 Purchased USD 5,400 of supplies for cash. (Only USD 900 of these supplies were used in June.)
29 Billed various customers for services rendered, USD 16,000.
30 Unpaid employee services received in the last half of June amounted to USD 12,600.
30 Received a bill for USD 600 for gas and oil used in June.
a. Prepare the entries for the transactions as Richard must have recorded them under the cash basis of accounting.
b. Prepare journal entries as they would have been prepared under the accrual basis. Where the entry is the same as under the cash basis, merely indicate “same”. Where possible, record the original transaction so that no adjusting entry would be necessary at the end of the month. Ignore explanations.