Question

During the first year of operations, a company sold $113,000 of goods to customers and received $96,500 in cash from customers. The remainder is owed to the company at the end of the year. The company incurred $71,300 in expenses for the year and paid $66,300 in cash for these expenses. The remainder is owed by the company at the end of the year. Based on this information, what is the amount of net income for the year

Answer 1

Answer:

Net Income for the year is $41700

Explanation:

The accounting basis that is generally followed by the businesses is the accrual basis of accounting. The accrual principle states that incomes and expenses should be recorded and recognized in the period to which they relate to rather than in the period where cash is received or paid.

This means that we will record income and expenses related to this year in this year's profit calculation even when we have not received or paid cash for such incomes and expenses.

Thus, net income for this year will be calculated as,

Net Income = Total Sales Revenue - Total expenses

Net income = 113000 - 71300    

Net Income = $41700