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-   -   Accrual and cash basis accounting (https://www.askmehelpdesk.com/showthread.php?t=86394)

  • Apr 25, 2007, 09:57 PM
    anharmon0630
    Accrual and cash basis accounting
    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.


    I am trying to figure out this answer... I came up with 12,750 for the cash basis net income, but I got the same thing for accrual... Help please!!
  • Apr 26, 2007, 12:15 AM
    CaptainForest
    Accrual Method
    Revenues 39,000
    Expenses 22,500
    Prepaid 0
    Net Income = 16,500

    Cash Method
    Revenues 33,000
    Expenses 20,250
    Prepaid (Expense) 3,750
    Net Income = 9,000
  • Mar 18, 2011, 10:08 AM
    MumtazAli
    Cash Basis :
    Cash received from customers : $33,000.00
    Expenses incurred during current period : $22,500.00 - $2,250.00 = $20,250.00
    Prepaid Expenses during the period : $3,750.00
    First Year Net Income would be : $33,000.00 - ($20,250.00 + $3,750.00) = $9,000.00

    Accrual Basis :
    Revenues Earned during First Year End : $39,000.00
    Expenses incurred during First year end : $22,500.00
    First Year Net Income would be ( R-D) : $16,500.00

    Please Note : Prepaid Expenses incurred in current period for future period is not an accrual. Accrual entry is booked for the unaccounted transactions happened during the current period and recognised in the future period.

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