Question

In its first year of operations, Grace Company reports the following: Earned revenues of $60,000 ($52,000 cash received from customers); Incurred expenses of $35,000 ($31,000 cash paid toward them); Prepaid $8,000 cash for costs that will not be expensed until next year. Net income under the accrual basis of accounting is__________________.

Answer 1

Answer:

$25,000

Explanation:

The accrual system of accounting recognizes incomes and expenditures when the economic activity associated with them takes place. Revenue is recorded when a sale is made regardless of whether payment has received or not.

For grace company, revenues as per the accrual system will be

$60,000 and expenditures $35,000

Net income = $60,000 - $35,000

=$25,000