In a financial year ,Vinod had total sales of 7,40,000 out of which 5,60,000 were received in cash. The total
expenses paid by him were 3,80,000, out of which 30,000 belongs to the next year and 10,000 are still
outstanding. Determine Vinod’s Income for the year as per:
a. Cash basis of Accounting.
b. Accrual basis of Accounting.
Answers
A) Cash basis: (not sure, most probably I am right)
Income = 560000-380000
= 180000
B) Accrual basis:
Income = 740000-(380000-30000+10000)
= 380000
Answer:
A) Cash basis:
Income = 560000-380000
= 180000
B) Accrual basis:
Income = 740000-(380000-30000+10000)
= 380000
Explanation:
Cash basis of Accounting:
A common accounting approach known as "cash basis" identifies revenues and costs at the time cash is received or paid out. This is in contrast to accrual accounting, which records costs as soon as they are spent and recognizes profits when revenue is produced regardless of when cash is collected or paid.
Company: Cash basis accounting is typically used by sole proprietorships and small firms. For public corporations, financial reporting is often done using the accrual method of accounting.
Accrual basis of Accounting.
In the accounting approach is known as accrual accounting, income or costs are recorded when a transaction takes place rather than when a payment is paid or received. The matching principle, which states that income and costs should be recognized at the same time, is followed by the approach.
Accounting foundation Accounting records business income and corresponding costs when they are incurred, rather than when money is transferred. This implies that businesses report income when it is earned rather than when the business receives the money.