Given the following transaction, what income would be reported (a) on the cash b

Question

Given the following transaction, what income would be reported (a) on the cash basis and (b) on the accrual basis? Credit sales to customers totaled $36,000 Cash sales totaled $105,000. Cash collections on account from customers totaled $33,000. Cost of goods sold during the period was $79,000 Payments made to supplies of inventory totaled S75,000 - - Wages of $23,000 were paid during the year. In addition, wages of S1,000 remained unpaid at year end; there were no wages unpaid at the beginning of the year.

Explanation / Answer

Calculate income under cash basis of accural basis :

Cash Basis Accural basis Sales 138000 141000 Less: Cost of goods sold/Payment for inventory (75000) (79000) Less: Wages (23000) (24000) Net income 40000 38000

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