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Blossom Company had the following transactions during 2021:

• Sales of $10620 on account
• Collected $4720 for services to be performed in 2022
• Paid $4430 cash in salaries for 2021
• Purchased airline tickets for $590 in December for a trip to take place in 2022
What is Blossom's 2021 net income using accrual accounting?

User Manto
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1 Answer

7 votes

Final answer:

Under accrual accounting, Blossom Company's 2021 net income is calculated by recognizing revenues when earned and expenses when incurred. The 2021 net income is $6190, considering sales on an account of $10620 and salary expenses of $4430, ignoring collected funds for future services and prepaid expenses.

Step-by-step explanation:

To calculate Blossom Company's 2021 net income using accrual accounting, we need to consider revenues when they are earned and expenses when they are incurred, regardless of when the cash transactions occur. Here are the adjustments we need to make:

  • Sales of $10620 on account: This amount is recognized as revenue for 2021 because it represents sales made during the year.
  • Collected $4720 for services to be performed in 2022: This amount should not be included in 2021 revenue since the services will be performed in 2022. It is considered unearned revenue and is a liability on the balance sheet until the service is performed.
  • Paid $4430 cash in salaries for 2021: This amount is an expense for 2021 because it relates to salaries for the year.
  • Purchased airline tickets for $590 in December for a trip to take place in 2022: This is a prepaid expense and not an expense for 2021. It will be an expense in 2022 when the trip occurs.

To calculate the net income, we subtract the expenses from the revenues for 2021:

Net Income = Sales on Account - Salaries Expense

Net Income = $10620 - $4430

Net Income = $6190

Therefore, Blossom Company's 2021 net income is $6190, based on accrual accounting.

User Vadim Khotilovich
by
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