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lariza
Jun 22, 2007, 11:38 PM
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.

bhet
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