Question

Tiger Stripes Art School uses the accrual basis of accounting. The company's operating activities for the month of February are summarized in the following transactions:

1. Provided $1,500 of instructional lessons.
2. Received $2,100 cash from students—of which $1,200 is for lessons provided in February, and $900 is for lessons provided in January.
3. Paid January's rental bill of $300. Received February's bill of $450 but did not pay.

Determine the company's net income for February.

Answer 1

The company's net income for February is $1,050. February's revenue is $1,500, cash receipts are $1,200, and expenses (excluding January's rent) are $450, resulting in a net income of $1,050.

The company's net income for February is $1,050.

Here's how I arrived at the answer:

1. Revenue: The company provided $1,500 of instructional lessons in February. This is considered revenue for February.

2. Cash Receipts: The company received $2,100 cash from students. However, $900 of this cash is for lessons provided in January, so it should not be counted as revenue for February. Therefore, the actual cash received for February lessons is $2,100 - $900 = $1,200.

3. Expenses: The company paid $300 for January's rent. This is an expense for January, so it should not be counted as an expense for February. The company also received February's rent bill for $450, but they did not pay it. Therefore, the only expense for February is February's rent of $450.

4. Net Income: Now, we can calculate the net income for February: Revenue ($1,500) + Cash Receipts from February Lessons
($1,200) - Expenses ($450) = $1,050.

Therefore, the company's net income for February is $1,050. So the answer is $1,050.