Question

Jules & Associates had the following information available related to revenues and expenses for the current period: Services provided for cash - $123,000 Services provided on account - $240,000 Expenses paid in cash - $140,000 Expenses incurred on account - $42,000 Assuming no subsequent collection or payment for revenues and expenses on account, what is Jules & Associates net income under both the cash and accrual basis of accounting?

Answer 1

Under cash basis accounting, Jules & Associates has a net income of -$17,000. Under accrual basis accounting, the net income is calculated to be $181,000. These figures are found by considering cash transactions under cash basis and both cash and non-cash transactions under accrual basis.

Step-by-step explanation:

To calculate the net income for Jules & Associates under both the cash basis and the accrual basis of accounting, we need to consider the revenues and expenses reported.

Cash Basis Accounting

Under the cash basis, only cash transactions are recorded. So, we account for:

• Services provided for cash: $123,000
• Expenses paid in cash: -$140,000

Net income under the cash basis = Revenues in cash - Expenses in cash = $123,000 - $140,000 = -$17,000.

Accrual Basis Accounting

Under the accrual basis, we record revenues when they are earned and expenses when they are incurred, regardless of when the cash is actually received or paid.

• Services provided for cash: $123,000
• Services provided on account: $240,000
• Total Revenues = $123,000 + $240,000 = $363,000
• Expenses paid in cash: -$140,000
• Expenses incurred on account: -$42,000
• Total Expenses = -$140,000 - $42,000 = -$182,000

Net income under the accrual basis = Total Revenues - Total Expenses = $363,000 - $182,000 = $181,000.