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:

Net Income under the accrual bases accounting $ 25.000

Explanation:

The accrual method means that expenses were incurred but it's needed to register an adjustment entry to the accounting to recognize it because we don't have the invoice yet

In this case the expenses were not incurred but we paid in advance part of it, so we have an assets in the balance sheet but not an entry in the income statement.

The way we paid the expenses is not a criteria to define the income statement, it's defined by the accrual method.