Question

A company records items on the cash basis throughout the year and converts to an accrual basis for year-end reporting. Its cash-basis net income for the year is $70,000. The company has gathered the following comparative Balance Sheet information: Beginning of year End of vear Accounts payable Unearned revenue Wages payable Prepaid rent Accounts receivable 3,000 1,000 500 400 300 300 1,200 1,400 1,500 What amount should the company report as its accrual-based net income for the current year? a. 68,800 b. 70,200 c. 71,200 d. 73,200

Answer 1

Answer:

c. 71,200

Explanation:

For computing the net income under accrual-based , the net income would be

= Cash basis net income + account payable opening balance - account payable closing balance + unearned revenue opening balance - unearned revenue closing balance + wages payable opening balance - wages payable closing balance - prepaid rent opening balance + prepaid rent closing balance - account receivable opening balance + account receivable closing balance

= $70,000 + $3,000 - $1,000 + $300 - $500 + $300 - $400 - $1,200 + $1,500 - $1,400 + $600

= $71,200

We add the opening balance of liabilities an deduct the ending balance of liabilities and it would be reverse in the case of liabilities.