Question

During the first year of operations, a company sold $118,000 of goods to customers and received $99,000 in cash from customers. The remainder is owed to the company at the end of the year. The company incurred $71,800 in expenses for the year and paid $66,800 in cash for these expenses. The remainder is owed by the company at the end of the year. Based on this information, what is the amount of net income for the year?

Answer 1

Net income = $46,200

Step-by-step explanation:

In this scenario the company is using accrual method of accounting where some revenue is recieved in cash and the others are accounts receivable. Expenses are also paid paid partly in cash and the remaining is accounts payable.

Revenues and expenses however are recorded when they are earned or incurred.

The company earned revenue of $118,000, $99,000 is in cash and the rest is accounts receivable.

They also had expenses of $71,800 incurred with $66,800 paid in cash and the rest is accounts payable.

The net income will be revenue earned less expenses incurred.

Net income = 118,000 - 71,800

Net income = $46,200