Question

Use the following to answer questions 1-4 A company maintains its records using accrual basis accounting; however, their accountant wants to create a statement of cash flows and needs to determine the cash flow from operating activities. For simplicity, we assume only one expense account (salaries). The following is data gathered from their records. Services provided to customers during the period Salaries expense for the period Accounts receivable (beginning balance) Accounts receivable (ending balance) Salaries payable beginning balance) Salaries pavable lending balance $700,000 500,000 32,000 28,000 42,000 44,000 Use T-accounts for ACCOUNTS RECEIVABLE and SALARIES PAYABLE to help answer questions #1 82. NOTE: ALL SERVICES PROVIDED ARE ON ACCOUNT AND SALARIES EXPENSE ARE RECORDED BEFORE THEY ARE PAID. 1. Determine the amount of cash collected from customers during the period: S________ 2. Determine the amount for cash paid for salaries during the period: $ 3. Determine accrual basis net income for the period: $ 4. Determine cash basis net income for the period: S ___ Use the following to answer questions 5-6 Following is a February transaction for a company. Calculate the amount of expense to recognize in February Recorded $20,000 salaries and wages for February, paid $15,000 in February and will pay $5,000 in March. 5. Accrual basis expense: $ 6. Cash basis expense: 5 Use the following to answer 7-8 Following is a February transaction for a company. Calculate the amount of revenue to recognize in February. In February the company performed $30,000 of services and received $40,000 payment from customers for services performed in February and January. 7. Accrual basis revenue: $ 8. Cash basis revenue: $

Answer 1

1. Calculation of cash collected from customers during the period: Amount Particulars Accounts Receivable Amount Particulars Cash collected from customers 32,000 (b/f) ($) ($) Beginning Balance 704,000 Services provided during the period 700,000 Ending Balance 28,000 732,000 732,000 Cash collected from customers during the period = $704,000 2. Calculation of cash paid for salaries during the period: Salaries Payable Amount ($) Particulars 42,000 Cash paid for salaries (b/f) Particulars Beginning Balance Amount ($) 498,000 Salaries expense for the period 500,000 Ending Balance 44,000 542,000 542,000 Cash paid for salaries during the period = $498,000 3. Calculation of net income for the period on accrual basis: Services provided during the period Less: Salaries expense for the period Net income for the period on accrual basis $700,000 (500,000) 200,000 4. Calculation of net income for the period on cash basis: Cash collected from customers during the period Less: Cash paid for salaries during the period Net income for the period on cash basis $704,000 (498,000) 206,000

5. The amount of salaries and wages expense to be recognised in February on accrual basis is $20,000 (the amount recorded and not the cash paid). 6. The amount of salaries and wages expense to be recognised in February on cash basis is $15,000 (the amount of cash paid in February) 7. The amount of revenue to be recognised in February on accrual basis is $30,000 (the amount of services performed). 8. The amount of revenue to be recognised in February on cash basis is $40,000 (the amount of cash received). Note: Under accrual basis, the income and expense are recognised when they are earned and incurred respectively. However under cash basis, the income and expense are recognised when the cash is received and paid respectively.