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cash vs accrual info

cash vs accrual info - completed by year end The payables...

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12SP101107 – KRISTY GREEN On March 1, 2007, you decide to start a lawn service business. You invest $10,000 of your savings and borrow $6000 at 7% annual interest rate. You purchase $4000 of supplies on credit and purchase equipment costing $12,000, paying $4000 down and financing the balance, interest free. The equipment is to be depreciated straight-line, over 5 years. You do some fine marketing and receive $3000 of prepayments for yard work to be completed in the future. During the next 10 months you incur $2000 of operating expenses, of which half are still owed at year end. At year end, you have $1000 of supplies remaining. You also receive $2000 cash during the year for yard work completed. Relative to the $3000 of prepayments received, 80% of the work has been
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Unformatted text preview: completed by year end. The payables balance at year end for the supplies is $500, and the balance owed on the equipment is $8000. Based on this information, what is the 1) accrual basis net income and 2) the cash basis net income? Statement of income based on accrual basis and cash basis Particulars Accrual basis Cash basis Revenue: Receipts for yard work 2,400 3,000 Cash received during the year 2,000 2,000 Total revenues 4,400 5,000 Less expenses: Supplies 4,000 4,000 Less ending balance/supplies payable 1,000 3,000 500 3,500 Depreciation (12,000/5) 2,400 Operating expenses(50% is owed) 2,000 1,000 Interest @7% on 6,000 420 Total expenses 7820 4,500 Net income/loss-3,420 500...
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