Supreme Ice cream Inc., purchased inventory for its ice cream shop in August 2009 for 40,000 in...
Question:
Supreme Ice cream Inc., purchased inventory for its ice cream shop in August 2009 for 40,000 in cash to sell in August and September. The company sold inventory that cost 38,000 in August and the remainder in September.
a) What are the cost of goods for August 2009 and the cost of goods sold for September 2009 if supreme uses GAAP?
b) What is the cost of goods sold for each month if Supreme uses cash basis accounting?
Accrual Basis vs Cash Basis of Accounting
A business is free to elect which methods it will use on recognizing its revenues and expenses. In accounting, there are two methods available: 1) Accrual Basis of Accounting which only recognizes a revenue or expense account only when it is incurred, for example, interest expense on notes payable is immediately recognized when earned even though there is no cash payment involved. In contrast to the first example, the second method which is 2.) Cash-basis of accounting will only recognize to the books the aforementioned interest expense when cash was actually paid for the same transaction.
Answer and Explanation: 1
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View this answera) What are the cost of goods for August 2009 and the cost of goods sold for September 2009 if supreme uses GAAP?
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