Question

Molly's auto detailers maintains its records on the cash basis. During 2018, molly's collected $72,800 from customers and paid $20,400 in expenses. Depreciation expense of $4,900 would have been recorded on the accrual basis. Over the course of the year, accounts receivable increased $4,500, prepaid expenses decreased $1,900, and accrued liabilities decreased $1,700. Molly's accrual basis net income was

Answer 1

Accrued Net Income will be calculated as below:

Sales                                                    $72800

Less Expenses                                     $20400

Cash Income                                         $52400

Less: Depreciation                                 $4900

Add: Accounts Receivable Inc              $4500

Less: Reduction in Prepaid Exp             $1900

Add: Reduction in Acc Liab                    $1700

Accrued Income                                   $51800

Depreciation will be reduced as its an expense and all expenses will be reduced.

Increase in Accounts Recievables indicate there have been sales which have not been paid for yet, thus sales will increase and this needs to be added

Reduction in Prepaid Expenses refer to expenses being paid off earlier but now need to be recognised, thus these need to be added to expenses

Reduction in accrued liabilitites indicate that expenses of previous period have been paid off now thus those need to be reduced from cash expenses.