What is the difference between a cash-basis income statement and an accrual-basis income statement? For example, how would I record a cash basis income statement for April, May, and June, if the company started in April? HELP!

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Originally Posted by asimko_501

What is the difference between a cash-basis income statement and an accrual-basis income statement? For example, how would I record a cash basis income statement for April, May, and June, if the company started in April? HELP!

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Cash basis accounting does not work well for companies that have inventories, sell on credit,etc, In these instances you will need to use the accrual method of method.The effect the accrual will have over the cash method is that the accrual more accurately reflects the company's true financial position. For financial purposes most lending instituitions will require the accrual method of accounting to secure financing.

What is cash-based income statement?

You only report revenues when you receive cash and you report expenses when you pay cash.

SIFAN Consultancy Company maintains its financial records on the cash basis of accounting. During the year 2003, the company collected $600, 000 from its clients and paid $340,000 for operating expenses, resulting in a cash basis net income of $260,000. The information listed below was obtained from the comparative balance sheets prepared for the year 2003.
Particulars Jan.1,2003 Dec.31,2003
Accounting Receivable $24,000 $18,000
Unearned Service Revenue 0 8,000
Accrued Expenses 4,000 11,100
Prepaid Expenses 3,600 5,400

Required: Prepare Income Statement for SIFAN Consultancy Company for the year 2003 under the accrual basis of accounting

You need to analze your accounts and determine how it affects your income statement.

Accounts Receivable decreased by $6,000 which means that customers paid their bills. Under cash basis you had net income, but in accrual basis there is no income, so you need to reduce your net income by $6,000

Unearned Revenues increased by $8,000 which means that customers paid in advance for goods or services to be delivered or performed at a later time. In cash basis you recorded this as revenue, but in accrual it is not revenue, so you need to decrease Net Income by $8,000

Accrued Expenses increased by $7,100 which means that in cash basis net income was not affected, but in accrual basis net income is affected, so you need to decrease net income by $7,100

Prepaid Expenses increased by $1,800 which means that in cash basis net income should not be affected, but it is affected in accrual basis, so you need to add $1,800 to net income.