Question

4. tim co. wants to convert its 20x8 financial statements from the accrual basis of accounting to the cash basis. supplies inventory decreased and office salaries payable decreased between january 1, 20x8, and december 31, 20x8. to obtain 20xx8 cash basis net income, should these changes be added to or deducted from accrual basis net income? supplies office salaries inventory payable a. added added b. added deducted cc. deducted added d. deducted deducted e. none of the above.

Answer 1

To obtain 20xx8 cash basis net income, supplies inventory should be deducted and office salaries payable should be added to the accrual basis net income.

Step-by-step explanation:

To convert the financial statements from the accrual basis of accounting to the cash basis, you need to consider the changes in supplies inventory and office salaries payable. When supplies inventory decreases, it means cash was used to purchase supplies, so it should be deducted from the accrual basis net income. On the other hand, when office salaries payable decreases, it means cash was paid to employees, so it should be added to the accrual basis net income.