Question

7. Vijay, a consultant, during the financial year 2018–19 earned * 4,00,000. Out of which
he received 3,50,000. He incurred an expense of 3 1,70,000, out of which * 40,000 are
outstanding. He also received consultancy fee relating to previous year * 45,000 and also
paid 20,000 expenses of last year.
You are required to determine his income for the year if
(i) he follows Cash Basis of Accounting and
(ii) he follows Accrual Basis of Accounting.
[(i) * 2,45,000; (ii) * 2,30,000.]​

Answer 1

Answer:

cash basis: Total amount of cash received and paid for the period is taken. No adjustment needed for outstanding or advance receipt or payment to be made.

Receipt - 350000+45000 = 395000

Payment - 130000+20000 = 150000

Income - 395000-150000 = 245000

Accrual basis: Here all the adjustments are to be made and only the actual amount for the period to be taken for calculation of receipt and payment. Prior period adjustments are not required.

Receipt - 350000+50000 = 400000

Payment - 130000+40000 = 170000

Income - 400000-170000 = 230000

it may help u

Answer 2

Concept:

Cash basis

The sum of all money paid out and received during the time period is calculated. There is no need to make an adjustment for a pending or advanced receipt or payment.

Accrual basis

Only the actual amount for the period should be used to calculate receipt and payment in this situation after all adjustments have been made. Adjustments for prior periods are not necessary.

Given:

Earned  4,00,000. Out of which he received 3,50,000. He incurred an expense of 3 1,70,000, out of which  40,000 are outstanding. He also received consultancy fee relating to previous year 45,000 and also paid 20,000 expenses of last year.

Find:

Income for the year for Cash Basis of Accounting  and Accrual Basis of Accounting.

Solution:

Cash Basis

Receipt - 350000+45000 = 395000

Payment - 130000+20000 = 150000

Income  - 395000-150000 = 245000

Accrual Basis

Receipt - 350000+50000 = 400000

Payment - 130000+40000 = 170000

Income  - 400000-170000 = 230000

Under cash basis income is 245000, accrual basis income is 230000

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