Question

In 2020, Wimer Corporation, a service business, no longer qualifies as a small business. Thus, it must change from the cash to the accrual method starting with its 2020 tax year.. At the beginning of 2020, Wimer had accounts receivable of $575,000. Also, Wimer had accounts payable of $345,000. Determine the adjustment to income due to the change in accounting method and the amount that is allocated to 2020.

Answer 1

Explanation:

Data given in the question  

Beginning account receivable = $575,000

Account payable balance = $345,000

Since the account receivable is arise from credit sales where the account payable is arisen from credit purchase  

Plus, the income is also increased by considering the account receivable balance while on the other hand, the income can be decreased if account payable is considered  

So the net effect is  

= $575,000 - $345,000

= $230,000

Since the net income comes in positive so the net income is increased