Question

Return to question Item 1 Item 1 In its first year of operations, Roma Company reports the following. Earned revenues of $65,000 ($57,000 cash received from customers). Incurred expenses of $35,500 ($27,250 cash paid toward them). Prepaid $11,750 cash for costs that will not be expensed until next year. Compute the company's first year net-income under both the cash basis and the accrual basis of accounting

Answer 1

Answer:

Cash basis accounting  (record accounting transactions only when the corresponding cash is received or payments are made)

Revenues (cash receipts)          $57,000

Expenses ($27,250+$11,750)    $39,000

Net income                                 $18,000

Accrual basis accounting  (record accounting transactions for revenue when earned and expenses when incurred)

Revenues (earned)                     $65,000

Expenses (incurred)                   $35,500

Net Income                                $29,500