Malast Industries collected $105,000 from customers in 2012. Of the amount colle

Question

Malast Industries collected $105,000 from customers in 2012. Of the amount collected,
$25,000 was from revenue earned on account in 2011. In addition, Malast earned $40,000 of revenue
in 2012, which will not be collected until 2013.
Malast Industries also paid $72,000 for expenses in 2012. Of the amount paid, $30,000 was
for expenses incurred on account in 2011. In addition, Malast incurred $42,000 of expenses in
2012, which will not be paid until 2013.

Instructions
(a) Compute 2012 cash-basis net income?
(b) Compute 2012 accrual-basis net income?

Explanation / Answer

(a) Cash received from revenue ......................... $105,000
Cash paid for expenses---------------------------------------72,000
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Cash-basis net income ........... .......................... $33,000
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(b) Revenues [($105,000 – $25,000) + $40,000] .......... $120,000
Expenses [($72,000 – $30,000) + $42,000]-------- ------------80,000
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Accrual-basis net income------------------------- -------------$40,000
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