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Cash and Accrual basis accounting
In the first year of operations, Harden Co. earned $39,000 in revenues and received $33,000 cash from this customers. The company incurred expenses of $22,500 but had not paid $2,250 of them at year-end. Harden also prepaid $3,750 cash for expenses that would be incurred the next year.
Calculate the first year's net income under the cash basis and accrual accounting. |
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Under cash basis revenue is earned when cash is received, and expenses are incurrred when they are paid.
Rev:... $33,000 Exp... $24,000 Net income... $9,000 Expenses comp: Paid expenses ($22,500 - $2,250)... 20,250 Prepaid exp... $3,750 Expense... 24,000 Under accrual Revenues... $39,000 Expense... $22,500 Income... $16,500 |
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