Question

In its first year of operations, Michael earned `35,000, ` 6,000 of which is still outstanding at
year-end. The remaining ` 29,000 was received in cash from customers.
The company incurred expenses of ` 15,800. Of these expenses, `12,000 were paid in cash ;
` 3,800 was still owed on account at year-end. In addition, Michael prepaid ` 2,400 for
insurance coverage that would not be used until the second year of operations.
Calculate the first year's net Income under the cash basis of accounting, and calculate the first
year's net Income under the accrual basis of accounting.

Answer 1

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Explanation:

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Answer 2

In its first year of operations, Michael earned `35,000, ` 6,000 of which is still outstanding at

year-end. The remaining ` 29,000 was received in cash from customers.

The company incurred expenses of ` 15,800. Of these expenses, `12,000 were paid in cash ;

` 3,800 was still owed on account at year-end. In addition, Michael prepaid ` 2,400 for

insurance coverage that would not be used until the second year of operations.

Calculate the first year's net Income under the cash basis of accounting, and calculate the first

year's net Income under the accrual basis of accounting.