On September 1, 2013, Dr. Poppy billed one patient for $50,000. On October 1, 20

Question

On September 1, 2013, Dr. Poppy billed one patient for $50,000. On October 1, 2013, she had received $35,000, with the remaining $15,000 to be received in early 2014. Total expenses during 2013 were $40,000 with $5,000 of these costs not yet paid at December 31.

Determine income under both methods.

1. Under Cash-Based accounting how much goes into Cash Disbursements?

2. Under Accrual-Based Accounting, how much goes into Revenue Earned?

NOTES:

Cash Basis Accounting
Under the cash basis accounting, revenues and expenses are recognized as follows:
Revenue recognition: Revenue is recognized when cash is received.
Expense recognition: Expense is recognized when cash is paid.

Accrual Basis Accounting
Under the accrual basis accounting, revenues and expenses are recognized as follows:

Revenue recognition: Revenue is recognized when both of the following conditions are met:
a. Revenue is earned.
b. Revenue is realized or realizable.

Expense recognition: Expense is recognized in the period in which related revenue is recognized (Matching Principle - See PowerPoint Lecture if don't remember this phrase).

$50,000

Explanation / Answer

Under cash based accounting

Total Disbursements :$35000

Under accrual based accounting

Revenue earned :$50000

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