1. Classify each of the subsequent events as either, a revenue, expense or neither. You should also describe why it is classified as a revenue, expense or neither.
a. Spencer provides services to a client. The client had agreed up front that they would provide Spencer capital stock in lieu of cash for his service.
b. Spencer provides $800 in services to client and sends client the bill.
c. Spencer receives utility bill for electricity in the mail
d. Spencer transfers $100 to his personal checking account
e. Spencer receives water bill and pays it instantly with a check
f. Spencer hires a student to run errands for the business. The student has worked last two weeks, with today being the end of pay period.
g. Spencer gives $500 in services to a client who pays in cash.
2. Bowen Company made sales of $200,000 to customers of which it received $140,000 in cash. Bowen incurred $120,000 in operating expense, of which it paid $90,000 in cash.
a. Demonstrate how the accrual basis net income is derived
b. Demonstrate how the cash basis net income is derived
c. Suppose that while $200,000 of sales above were billed to customer in Year 1, customers remitted payments for $120,000 in Year 2. During which Year would revenues be reported on Income Statement under, first, the accrual basis, and second the cash basis?