Question

A company records items on the cash basis throughout the year and converts to an accrual basis for year-end reporting. Its cash-basis net income for the year is $70,000. The company has gathered the following comparative Balance Sheet information: Beginning of year End of year Accounts payable $3,000 $1,000 Unearned revenue 300 500 Wages payable 300 400 Prepaid rent 1,200 1,500 Accounts receivable 1,400 600 What amount should the company report as its accrual-based net income for the current year?

Answer 1

$71,200

Step-by-step explanation:

The computation of the amount of the net income that should be based on accrual basis is given below:

Here we added the starting balance of liability and deduct the closing balance of liability

Also the asset closing balance would be added while the asset beginning balance would be deducted

So,

= Net income + Opening balance of account payable - closing balance of account payable + opening balance of unearned revenue - closing balance of unearned revenue + opening balance of wages payable - closing balance of wages payable + closing balance of prepaid rent - opening balance of prepaid rent + closing balance of account receivable - opening balance of account receivable

= $70,000 + $3,000 - $1,000 + $300 - $500 + $300 - $400 + $1,500 - $1,200 + $600 - $1,400

= $71,200