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ABC Co. wants to convert its 2017 financial statements from the accrual basis of accounting to...

ABC Co. wants to convert its 2017 financial statements from the accrual basis of accounting to the cash basis. Both A/R ‐ Utility Billing and Accrued Payroll increased between January 1, 2017 and December 31, 2017. To obtain 2017 cash basis net income, how should these increases be added to or deducted from accrual‐basis net income?

                        A/R Utility Billing          Accrued Payroll

            a.          Deducted                        Deducted

            b.         Deducted                        Added              

            c.          Added                           Deducted                                                           

            d.         Added                           Added

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Answer #1

Answer to the above accounting question:

B. Deducted added

To obtain 2017 cash basis net income, increase in accounts receivable utility billing should be deducted and increase in accrued payroll should be added from accrual basis net income.

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