Question

A company paid $900 to workers during May. Of this amount, $600 was for work performed in April, while the other $300 was for work performed during May. What would the impact of this transaction be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income?

Answer 1

Answer:

1. Cash balance will decrease

2. Cash-basis net income will decrease

3. Accrual-basis net income will decrease

Explanation:

$900 was paid to the workers by the company in May for $600 work performed in April and $300 in May. If the company follows cash basis, then cash balance will reduce by $900. If the company follows accrual-basis, then cash balance will reduce by $300.

Cash basis net income will decrease by $900 while accrual basis net income will reduce by $300 as $600 would have been accounted in April.