Question

A company maintains its records using cash-basis accounting. During the year, the company received cash from customers, $32,000, and paid cash for salaries, $24,000. At the beginning of the year, customers owe the company $3,000. By the end of the year, customers owe $5,500. At the beginning of the year, the company owes salaries of $3,100. At the end of the year, the company owes salaries of $5,700. Determine cash-basis net income and accrual-basis net income for the year.

Answer 1

Answer:

Cash-basis net income: $8,000

Accrual-basis net income: $7,900

Explanation:

A company maintains its records using cash-basis accounting. During the year, the company received cash from customers, $32,000, and paid cash for salaries, $24,000. At the beginning of the year, customers owe the company $3,000. By the end of the year, customers owe $5,500. At the beginning of the year, the company owes salaries of $3,100. At the end of the year, the company owes salaries of $5,700. Therefore, the Cash-basis net income is $8,000  and the Accrual-basis net income is $7,900.

Answer 2

Answer:

net income cash-basis     8,000

income accrual-basis        7,900

Explanation:

cash revenues                32,000

salaries expense          (24,000)  

net income cash-basis     8,000

sales for the period:

beginning AR + sales - collected = ending AR

3,000 + sales - 32,000 =  5,500

sales = 34,500

salaries expense:

beginning salaries payables + salaries - paid = ending salaries payable

3,100 + salaries - 24,000 = 5,700

salaries 26,600

revenues                    34,500

salaries                      (26,600)  

income accrual-basis   7,900