Michael gives following information about his income and expenses for the year ended 31st March,2021: Expenses paid Rs. 1,60,000 Expenses paid in advance (included in Rs. 1,60,000) Rs. 40,000 Expenses not yet paid Rs. 20,000 Income Received Rs. 2,40,000 Income received in advance (included in Rs. 2,40,000) Rs. 30,000 Income not yet received Rs. 24,000 Determine his income if he adopts
(i) Cash Basis of Accounting
(ii) Accrual Basis of Accounting.
Answers
Explanation:
1)cash basis: 60000
2)accrual basis: 67000
Explanation:
1)in cash basis,
we only include the expenses paid and income received.
thus, net profit-income -expenses
=240000-180000
=60000
2)in accrual basis,
net profit =(income received+ income not yet received -income paid in advance) - (expenses paid-expense paid in advance+ expenses yet to be paid)
=(240000+12000-15000)-(180000-20000
+10000)
=(237000)-(170000)
-67000
Income when he chooses cash basis of accounting 90,000.
Income when he chooses an Accrual basis of accounting 8,400.
GIVEN: Income and Expenses of Micheal.
TO FIND Income according to Cash and Accrual basis of Accounting.
SOLUTION:
As we are given in the question,
The following transactions occur in the books of Michael:
Expenses paid Rs. 1,60,000 Expenses paid in advance (included in Rs. 1,60,000) Rs. 40,000 Expenses not yet paid Rs. 20,000 Income Received Rs. 2,40,000 Income received in advance (included in Rs. 2,40,000) Rs. 30,000 Income not yet received Rs. 24,000
CASH BASIS OF ACCOUNTING
Total income =240000-30000
Total income =210000
Total expenses =160000-40000
Total expenses = 120000
Income according to cash basis = 210000-120000
Income according to cash basis =90000
ACCRUAL BASIS OF ACCOUNTING
Total income=240000+24000
Total income =264000
Total expenses=160000+20000
Total Expenses =180000
Income According to accrual basis =264000-180000
Income According to accrual basis =8400
Therefore,
Income when he chooses cash basis of accounting 90,000.
Income when he chooses an Accrual basis of accounting 8,400.
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