Accounting & Bookkeeping & Small Business Forum

[pacmandefense]

ear 2 Year 3
Amounts billed to customers for services rendered $350,000 $450,000

Cash collected from credit customers $260,000 $450,000

Cash disbursements:
Payment of Rent $80,000 $0
Salaries paid to employees $140,000 $160,000
Travel and entertainment $30,000 $40,000
Advertising $15,000 $35,000


In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.
1. Calculate accrual net income for both years.
2. Determine the amount due the advertising agency that would be shown as a liability on the RPG's balance sheet at the end of year 2.

[stasia2003]

pacmandefense wrote: ear 2 Year 3
Amounts billed to customers for services rendered $350,000 $450,000

Cash collected from credit customers $260,000 $450,000

Cash disbursements:
Payment of Rent $80,000 $0
Salaries paid to employees $140,000 $160,000
Travel and entertainment $30,000 $40,000
Advertising $15,000 $35,000


In addition, you learn that the company incurred advertising costs of $25,000 in year 2, owed the advertising agency $5,000 at the end of year 1, and there were no liabilities at the end of year 3. Also, there were no anticipated bad debts on receivables, and the rent payment was for a two-year period, year 2 and year 3.
1. Calculate accrual net income for both years.
2. Determine the amount due the advertising agency that would be shown as a liability on the RPG's balance sheet at the end of year 2.

Hi there. Since we ethically cannot do your homework for you, what is it about this question are you not understanding? :)

[pacmandefense]

i am not sure what to put for the advertising expense for year 3.

at the end of year 2, there is a liab on the B/s for 15k.
there is a cash disbursement of 35k to net out the account to zero.
does this imply there is a 20k expense in Y3?

[stasia2003]

pacmandefense wrote: i am not sure what to put for the advertising expense for year 3.

at the end of year 2, there is a liab on the B/s for 15k.
there is a cash disbursement of 35k to net out the account to zero.
does this imply there is a 20k expense in Y3?

The one thing I learned when I was an accounting undergraduate, never imply anything if the question didn't ask you any question beyond what's written.

So, they didn't ask you to determine anything for Year 3 so don't worry about it. All you need to know is that there is a $15,000 balance in the A/P that is owed to the advertising agency. We can't imply anything for Year 3 because they didn't give us enough information. Yes, they paid $35,000 in Year 3 but that could have went to other vendors.

[Dominic Bradish]

Remember that in accrual accounting, expenses are recorded as they are incurred, not when they are actually paid. Revenues are recorded when they are realized, not when payment is recieved. That's the key here.