Question

AP2-23 QUESTION Based on the following transactions, calculate the revenues, expenses, and net income that would be reported on (a) the cash basis and (b) the accrual basis:

i.Inventory costing $70,000 was purchased on account.

ii.Inventory costing $60,000 was sold for $100,000. Eighty percent of the sales were for cash.

iii.Cash collected from credit customers (those who bought on account) totalled $20,000.

iv.A lease was signed at the beginning of the year, requiring monthly payments of $1,000. The rent for the first month was paid when the lease was signed. After that, the $1,000 rent was paid on the last day of each month, to cover the following month.

v.Supplies costing $5,500 were purchased for cash. At the end of the year, $500 of the supplies were still unused.

vi.Wages of $37,500 were paid during the year. Also, wages of $500 remained unpaid at year end.

Answer 1

Computation of Expenses
	Accrual	cash basis
Purchase Inventory	$70,000
Rent paid	$12,000	$13,000
Supplies purchased		$5,500
Wages	$38,000	$37,500
Total expenses	$120,000	$56,000
Computation of Revenue
	Accrual	cash basis
Sale of Inventory( 80% in Cash)	$100,000	$80,000
Cash collected from credit customer		$20,000
Total	$100,000	$100,000
Computation of net Income
	Accrual	cash basis
Total Revenue	$100,000	$100,000
Total Expenses	$120,000	$56,000
Total	-$20,000	$44,000