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The following is a cash basis income statement for Sample Cafs first month of operation. Calculate the total expenses and net income for the business on a cash basis filling in the blanks below.

Sample Caf Income Statement

Cash Basis

Month Ended January 31, 2017

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/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 Caf in Question 1 to redo it on an accrual basis below. Be sure to break out cost of goods sold from the other expenses, and include a line item for the gross profit. (Fill in the Accrual Basis income statement below.)

3. A) Using the information from Question 1, fill in the Cash Basis income statement below. B) Compare the results of the two income statements below explaining the difference between Cash and Accrual basis and note any items missing or overstated using one approach as compared to the other. C) Which is more accurate: Cash Basis or Accrual Basis?

Cash Basis Accrual Basis Explain Difference

Revenue

COGS (Cups & Coffee) __________ ____________

Gross Profit

Equipment (Depr)

Insurance

Rent and Utilities

Payroll

Interest on Loan

Advertising/Promotion __________ ____________

Total Expenses __________ ____________

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