Question

Concord Industries collected $105,000 from customers in 2019. Of the amount collected, $25,300 was for services performed in 2018. In addition, Concord performed services worth $39,000 in 2019, which will not be collected until 2020. Concord Industries also paid $73,800 for expenses in 2019. Of the amount paid, $29,800 was for expenses incurred on account in 2018. In addition, Concord incurred $42,100 of expenses in 2019, which will not be paid until 2020. (a) Compute 2019 cash-basis net income. Cash-basis net income $enter the cash-basis net income

Answer 1

Answer:

$31,200

Explanation:

Cash basis income recognition records transactions as per receipts and payments in cash and ignores the period they relate to. Cash basis of accounting is not in accordance with matching principle of accounting.

Cash basis of accounting is not recommended by either IFRS or US GAAPs since it overlooks the incomes earned and expenses incurred during a period.

In the given case, Net Income based upon cash basis would be computed as follows:

All cash receipts during the year 2019 - All expenses paid during the year 2019

= 105,000 - 73,800

= $31,200