The Orange Lily Law Firm prepays for advertising in the local newspaper. On January 1, the law firm paid $3,480 for six months of advertising. Orange Lily Law Firm recorded $3,480 in the Prepaid Advertising account. If Orange Lily Law Firm had recorded their expenses using the other method, how much advertising expense would they have recorded for the two months ending February 28? Enter this value as a positive number. Safe Home provides house-sitting for people while they are away on vacation. Some of its customers pay immediately after the job is finished. Some customers ask that the business send them a bill. As of the end of the year, Safe Home has collected $3,710 from cash-paying customers. Safe Home's remaining customers owe the business $2,830. Safe Home recorded $3,710 of service revenue for the year. I had recorded their service revenue using the other method, how much service revenue would they have recorded for the year?

1. The Orange Lily Law Firm

Accrual Basis and Cash Basis:

For the two months, Orange Lily Law Firm would have entered $3,480 instead of recording only $1,160 ($3,480/6) x 2 in the Advertising Expense Account.

2. Safe Home

Accrual Basis and Cash Basis:

If Safe Home had used the Accrual Basis, it would recorded $6,540 ($3,710 + 2,830) as Service Revenue for the year, instead of recording only $3,710.

Explanation:

There are two methods of recording business transactions in accounting.  There is the cash basis.  This involves making records only in the period that cash flow (either inflow or outflow) takes place.

The accrual basis records business transactions as they occur in a period whether cash was received or paid or not.  The concentration of the accrual basis is to match the economic event to the period and not when actual cash event takes place..

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explanation: