Mostert Music Company had the following transactions in March:
a. Sold music lessons to customers for $14,000; received $8,400 in cash and the rest on account.
b. Paid $680 in wages for the month.
c. Received a $325 bill for utilities that will be paid in April.
d. Received $3,200 from customers as deposits on music lessons to be given in April.
Based on the information above, prepare a cash basis and an accrual basis income statement.

A cash basis income statement refers to an income statement that records revenue for which cash has been received and expenses for which cash has been paid for in a particular period. Therefore, cash basis income statement is not compliant with the generally accepted accounting principles (GAAP) or International Financial Reporting Standards (IFRS).

The cash basis income statement for Mostert Music Company for March can therefore be prepared as follows:

Mostert Music Company

Income Statement (Cash Basis)

For the month ended March

Particulars $

Cash Revenue:

Cash received for music lesson sold 8,400

Deposit received from customers 3,200

Total Cash revenue 11,600

Cash Expenses:

Wages paid (680)

Cash income 10,920

2. Accrual basis income statement

An accrual basis income statement records revenues when they are earned and expenses when they incurred no matter when cash is received or paid. Therefore, an accrual basis income statement is compliant with GAAP or IFRS.

The accrual basis income statement for Mostert Music Company for March can therefore be prepared as follows:

Mostert Music Company

Income Statement (Accrual Basis)

For the month ended March

Particulars $

Revenue:

Total sales to customers 14,000

Expenses:

Wages (680)

Utilities bill (325)

Net income 12,995