Question

Haskins and Jones, Attorneys-at-Law, maintains its books on a cash basis. During 2021, the law firm collected $590,000 for services rendered to its clients and paid out $421,000 in expenses. You are able to determine the following information about accounts receivable, prepaid expenses, deferred service revenue, and accrued liabilities: Accounts receivable Prepaid insurance Prepaid rent Deferred service revenue Accrued liabilities (for various expenses) January 1, 2021 $71,000 5,400 10,100 10,100 December 31, 2021 $ 67,000 7,200 8,300 12,400 13,100 16,900 In addition, 2021 depreciation expense on office equipment is $26,500. Required: Determine accrual basis net income for 2021. Cash basis income Add: Increase in prepaid insurance Increase in prepaid rent Increase in prepaid rent Deduct: Decrease in accounts receivable Decrease in prepaid rent Increase in accrued liabilities Depreciation expense Increase in deferred service revenue

Answer 1

$ 169,000 Cash basis income Add: Increase in prepaid insurance $ 1,800 Deduct: Decrease in accounts receivables Decrease in Prepaid Rent Increase in accured liabilities Depreciation Expense Increase in Deferred service revenue $ 4,000 $ 1,800 $ 3.800 $ 26,500 S 2,300 Accural basis net income $132.400 Working Notes: Cash basis income = $590,000-$421,000 = $169,000