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

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