In its first year of operations, Harden Co. earned $39,000 in revenues and received $33,000 cash from
These customers. The company incurred expenses of $22,500 but had not paid $2,250 of them at yearend.
Harden also prepaid $3,750 cash for expenses that would be incurred the next year. Calculate
The first year’s net income under both the cash basis and the accrual basis of accounting.

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Quote:

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Originally Posted by ROLCAM

Income under the cash basis.
----------------------------------

Cash received -------------------------$33,000
less.-------------------------------------=====
Cash Paid ------$22,500 - $2,250-----$20,250
-------------------------------------------=====
NET --------------------------------------$12,750
--------------------------------------------=====

______________________________________

Accrual Basis.
_____________

Revenue----------------------------------$39,000
Less
Expenses---$22,500 - $ 3,750----------$18,750
--------------------------------------------______
NET ---------------------------------------$20,250
--------------------------------------------=====

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Let them at least TRY to answer the question. Doing their homework for them is not helping!

Why don't we count the prepaid expenses in either the cash basis or the accural basis? I'm confused on that part