Question

The following transactions for Habari Company occurred during January 2017: Jan 1 Purchased a two-year insurance policy for cash, $8,400. Jan 4 Paid utilities bill that was received in December 2015, $450. Jan 9 Performed a service on account, $12,000. Jan 16 Paid monthly salary to employees, $2,700. Jan 21 Received $18,000 from a customer on account. Jan 25 Received $600 from January 9 transaction. Jan 31 Prepared the adjusting entry for insurance from January 1 transaction. Jan 31 Accrued wages of $2,750. Do not enter commas, spaces, decimals, or dollar signs in your answer. For example, if your answer is $2,333, then enter it as 2333 If your answer is negative, i.e. a net loss of $2,333, then enter your answer in brackets withoutcommas, spaces, decimals, or dollar signs as: (2333) What is the amount of income under the cash basis? |

Answer 1

Under cash basis, we take transactions that involve receipts and payments of cash, irrespective of the period they belong to.

Net income under cash basis = Total revenues under cash basis - Total expenses under cash basis

Total revenues under cash basis = Revenue received on Jan 21 + Revenue received on Jan 25

Total revenues under cash basis = 18000 + 600 = 18600

Total expenses under cash basis = 8400 + 450 + 2700 = 11550

Now, we will calculate net income under cash basis as below:

Net income under cash basis = 18600 - 11550 = 7050