During June,the Grass is Greener Company mows 100 lawns a week; the company was paid in advance during May by those customers.The company uses the accrual basis of accounting.How will these events affect the company's financial statements?

Question

Quizplus · Accepted Answer

Since the Grass is Greener Company uses the accrual basis of accounting, revenue is recognized when it is earned, not when payment is received. Therefore, the payment received in May is considered a liability until the lawn mowing services are provided in June. As such, the income statement will show the effects of the lawn mowing transactions in June, when the revenue is earned, and the balance sheet will show the liability from the prepaid services in May.

During June,the Grass Is Greener Company Mows 100 Lawns a Week;