Question

In its first year of operations, Wildhorse Co. recognized $33,700 in service revenue, $7,800 of which was on account and still outstanding at year-end. The remaining $25,900 was received in cash from customers. The company incurred operating expenses of $19,400. Of these expenses, $13,600 were paid in cash; $5,800 was still owed on account at year-end. In addition, Wildhorse prepaid $2,680 for insurance coverage that would not be used until the second year of operations. (a) Calculate the first year’s net earnings under the cash basis of accounting, and calculate the first year’s net earnings under the accrual basis of accounting.

Answer 1

Answer:

accrued basis income: 14,300

cash basis income:        9,500

Explanation:

accrued: we reocgnize base on the time of transfer of goods and the expense are mathced when the period they occur.

revenues                   33,700

operating expense (19,400)

  net income             14,300

cash basis: we recognize based on the cash collection or disbursement:

collected from customer     25,900

paid expenses                     (13,600)

insurance paid                      (2,800)  

           net income                 9,500