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Cash and Accrual basis accounting

Asked Jun 22, 2007, 11:38 PM — 1 Answer
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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bhet Posts: 78, Reputation: 44
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Jun 23, 2007, 12:51 AM
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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