Question

Al is a medical doctor who conducts his practice as a sole proprietor. During 2020, he received cash of $687,600 for medical services. Of the amount collected, $57,600 was for services provided in 2019. At the end of 2020, Al had accounts receivable of $96,500, all for services rendered in 2020. In addition, at the end of the year, Al received $14,000 as an advance payment from a health maintenance organization (HMO) for services to be rendered in 2021.
Required:
Compute Al's gross income for 2020.

Answer 1

Answer:

Cash basis OF accounting method $701,600

Accrual basis of accounting method$726,500

Explanation:

Computation of Al's gross income for 2020 using cash basis of accounting method

Gross income

Cash $687,600

Add advance payment $14,000

Total $701,600

Therefore Al's gross income using cash basis of accounting method will be $701,600

Computation of Al's gross income for 2020 using accrual basis of accounting method

Cash received $701,600

($687,600+$14,000)

Less: Income received but will not be earned until 2021 ($14,000)

Less: Beginning of year accounts receivable ($57,600)

Add End of year accounts receivable $96,500

$300,000

Total $726,500

Therefore Al's gross income using accrual basis of accounting method will be $726,500