### Exercise

Entity A had the following transactions in December 20x1 and January 20x1.

Dec. 5, Purchased 1,000 units of merchandise at \$10 per unit in cash.

Dec. 12, Sold 800 units of merchandise at \$15 per unit in cash.

Dec. 20, Sold 200 units of merchandise at \$15 per unit on account.

Jan. 10, Collected \$2,800 cash for the sale on December 20

1. Under cash basis of accounting, what is the amount of revenue for December?

800 units x \$15 = \$12,000

2. Under cash basis of accounting, what is the amount of expense for December?

1,000 units x \$10 = \$10,000

3. Under cash basis of accounting, what is the amount of profit for December?

Revenue - Expense = \$12,000 - \$10,000 = \$2,000

4. Under accrual basis of accounting, what is the amount of revenue for December?

800 units x \$15 + 200 units x \$15 = \$12,000 + \$3,000 = \$15,000

5. Under accrual basis of accounting, what is the amount of expense for December?

Cost of merchandise sold = 1,000 units x \$10 = \$10,000

6. Under accrual basis of accounting, what is the amount of profit for December?

Revenue - Expenses = \$15,000 - \$10,000 = \$5,000