Adjusting for Accrued Expenses and Revenues
Assume you are the manager of your own Internet Service Provider. You have just one employee, who you pay $95.00 a day. You
pay this employee every Friday.
You are baffled, however, when you observe that your net income for the month of June is lower than your net income for the month
of May, even though your revenue in June was greater than in May. Your confusion is compounded by the fact that your
expenses for this service firm remain constant from month to month.
Assignment
The Income Statements for May and June, as well as the calendars for these two months, are presented below. After you have
inspected these documents, answer the questions that follow.
May
| SUN | MON | TUE | WED | THU | FRI | SAT |
| | 1 | 2 | 3 | 4 | 5 |
| 6 | 7 | 8 | 9 | 10 | 11 | 12 |
| 13 | 14 | 15 | 16 | 17 | 18 | 19 |
| 20 | 21 | 22 | 23 | 24 | 25 | 26 |
| 27 | 28 | 29 | 30 | 31 | | |
|
June
| SUN | MON | TUE | WED | THU | FRI | SAT |
| | | | | 1 | 2 |
| 3 | 4 | 5 | 6 | 7 | 8 | 9 |
| 10 | 11 | 12 | 13 | 14 | 15 | 16 |
| 17 | 18 | 19 | 20 | 21 | 22 | 23 |
| 24 | 25 | 26 | 27 | 28 | 29 | 30 |
|
Student Internet Service
Income Statement
For the Month Ended May 31, 1997
| Revenue | | |
| Service Fees Earned | | 4,000.00 |
| Expenses | | |
| Line Expense | 1,000.00 | |
| Salary Expense | 1,900.00 | |
| Hydro | 150.00 | |
| Total Expenses | | 3,050.00 |
| | |
| Net Income | | 950.00 |
| | ======= |
|
Student Internet Service
Income Statement
For the Month Ended June 30, 1997
| Revenue | | |
| Service Fees Earned | | 4,200.00 |
| Expenses | | |
| Line Expense | 1,000.00 | |
| Salary Expense | 2,375.00 | |
| Hydro | 150.00 | |
| Total Expenses | | 3,525.00 |
| | |
| Net Income | | 675.00 |
| | ======= |
|