Question

Cash versus accrual accounting

Newman Consulting Company maintains its records on a cash basis. During 2011 the following cash flows were recorded: cash received from customers, $420,000; and cash paid for salaries, utilities, and advertising, $240,000, $35,000, and $12,000, respectively. You also determine that customers owed the company $52,000 and $60,000 at the beginning and end of the year, respectively, and that the company owed the utility company $6,000 and $4,000 at the beginning and end of the year, respectively. Determine accrual net income for the year.

Answer 1

$143,000

Explanation:

Newman consulting company maintains its record on its cash basis

The first step is to calculate the revenue

$420,000+($60,000-$52,000)

= $420,000+$8,000

= $428,000

The expenses can be can be calculated as follows

Utilities expenses = $35,000-($6,000-$4,000)

= $35,000-$2,000

= $33,000

Advertising expenses= $12,000

Salaries expenses= $240,000

Total expenses= $240,000+$12,000+$33,000

= $285,000

Therefore the accural net income for the year can be calculated as follows

= revenue - expenses

= $428,000-$285,000

= $143,000

Hence the accrual net income for the year is $143,000