biz cafe income statement assignment

Income Statement Assignment (Group Contribution)

The Income Statement provides a summary of revenues and expenses over a period of time, such as a month, quarter, or year. It provides information about the profitability of a business during the period specified.

1. The following is a cash basis income statement for Sample Café’s first month of operation. Calculate the total expenses and net income for the business.

   Sample Café

   Income Statement, Cash Basis

   Month Ended January 31, 20xx Item	Value	Note
   Revenue	$ 40,000	Excludes $2,200 in receipts not yet deposited.
   Equipment	$ 0	Purchased last month for $12,000 (5-year life).
   Insurance	$ 600	Premium for whole year.
   Rent and Utilities	$ 4,500	Includes $2,500 in rent and utility deposits.

   Coffee Purchased	$ 2,300	Includes $100 worth thrown away.
   Cups Purchased	$ 1,600	$700 still in inventory.
   Payroll	$ 14,800	Owe $2,400 in taxes.
   Interest on Loan	$ 200	Paid mid-month.
   Advertising / Promotion	$ 12,000	$3,000 each week.
   Total Expenses
   Net Income

   

2. Use the notes from the cash basis income statement for Sample Café in question 1 (above) to redo it on an accrual basis. Be sure to break out cost of goods sold from the other expenses, and include a line item for the gross margin.

   

3. Compare the results of the two income statements in questions 1 and 2. Were any items missing or overstated using one approach as compared to the other? Which system more accurately reflects the results for the month, and why?

The cash basis income statement shows a net loss of $8,200.00 where the accrual basis of income statement shows a net profit of $5,350.00. This is because in cash basis we consider all the transaction that are happened in that period of time. In Accrual basis we only consider the receipt and payments that are happening only at that specific period. Yes, there were many missing and overstated while we compare the two approach for e.g.: in accrual basis there is equipment’s that is purchased this week so equipment expenses are “0” meanwhile in cash basis the we do have the equipment expense. I feel the accrual basis of income statement is much more accurate compared to the results of cash basis, because in accrual basis the only the receipts and payments that are made in that period of time is considered.