Question

Wasley Corp., a start-up company, provided services that were acceptable to its customers and billed those customers for $350,000 in 2012. However, Wasley collected only $280,000 cash in 2012, and the remaining $70,000 was collected in 2013. Wasley employees earned $225,000 in 2012 wages that were not paid until the first week of 2013. How much net income does Wasley report for 2012?

Answer 1

Answer:

$125,000

Explanation:

                     Wasley Corporation

                      Income Statement

 For the year ended, December 31, 2012

Revenues                                     $350,000

Less: operating expenses

Wages expense        $225,000

Total operating expenses          $225,000

Net Income (loss)                        $125,000

Notes:

1. Revenues are recognized whenever services are performed not when the cash is received. Therefore, the entire $350,000 is the revenue.

2. Wages are incurred but not paid. However, according to the matching principle, expenses are recognized whenever the expenses are incurred not necessary to when is to be paid. Therefore, the entire $225,000 is the wages expenses.