Question

Swifty Industries collected $106,000 from customers in 2019. Of the amount collected, $24,000 was for services performed in 2018. In addition, Swifty performed services worth $38,000 in 2019, which will not be collected until 2020. Swifty Industries also paid $70,500 for expenses in 2019. Of the amount paid, $30,700 was for expenses incurred on account in 2018. In addition, Swifty incurred $42,700 of expenses in 2019, which will not be paid until 2020. (a) Compute 2019 cash-basis net income. Cash-basis net income $ 35500 (b) Compute 2019 accrual-basis net income. Accrual-basis net income $ 35000

Answer 1

Ans:

a. Cash-basis net income 2019:

Cash collection in 2019	$106,000
Expenses paid in 2019	($70,500)
Cash-basis 2019 net income	$35,500

b. Accrual-basis net income 2019:

Income earned in 2019:
Cash collection in 2019 for services rendered in 2018 & 2019	$106,000
Less: cash collected for 2018 services in 2019	($24,000)
Add: Service rendered in 2019 but no cash collected	$38,000
Total income earned in 2019 (a)		$120,000
Expenses incurred in 2019:
Cash paid in 2019 for services rendered in 2018 & 2019	$70,500
Less: Cash paid for expenses incurred in 2018	($30,700)
Add: Expenses incurred in 2019 but cash not paid	$42,700
Total expenses incurred in 2019 (b)		$72,500
Accrual-basis net income 2019 (a - b)		$47,500

a. Cash-basis net income 2019	$35,500
b. Accrual-basis net income 2019	$47,500

If any doubts or queries please comment and clarify I'll explain ASAP