Al is a medical doctor who conducts his practice as a sole proprietor. During 2019, he...
Al is a medical doctor who conducts his practice as a sole proprietor. During 2019, he received cash of $592,600 for medical services. Of the amount collected, $52,800 was for services provided in 2018. At the end of 2019, Al had accounts receivable of $93,100, all for services rendered in 2019. In addition, at the end of the year, Al received $16,000 as an advance payment from a health maintenance organization (HMO) for services to be rendered in 2020.
a. Compute Al's gross income for 2019 using the
cash basis of accounting.
$
b. Compute Al's gross income for 2019 using the
accrual basis of accounting.
$
c. Advise Al on which method of accounting he should use.
Al should use the of accounting so that he will not have to pay income taxes on the .
Homework Answers
AI’s Gross Income For 2019 using Cash Basis of Accounting
| Particulars | Amount($) |
|---|---|
| For Medical Services | 592600 |
| Advance From HMO | 16000 |
| Gross Income For 2019 | 608600 |
AI’s Gross Income For 2019 using Accrual Basis of Accounting
| Particulars | Amount($) |
|---|---|
| For Medical Services Rendered In 2019. ( As per working Note 1 ) | 632900 |
| Gross Income For 2019 | 632900 |
Working Note 1:
Accounts Receivable A/c
| Particulars | Debit | Particulars | Credit |
|---|---|---|---|
|
Opening Balance (assumed that all money received for 2018 is opening balance) |
52800 | Cash Received During 2019 | 592600 |
| For Medical Services Rendered In 2019 (Balancing Figure) | 632900 | Closing Balance | 93100 |
| Total | 685700 | Total | 685700 |
AI should use Cash method of accounting for computing Gross
Income.As in Cash Basis of accounting gives low amount of Gross
Income.
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