Question

Homework#6: Silo Company had the following transactions during Dec. 2018. Earned services revenue on account $4,500, Collected $2,000 in cash for services performed. Paid $1,325 cash in salaries, Purchased airline tickets for $250 cash for a trip in Aug. 2019. Instructions: What is Net Income using Accrual and Cash basis of accounting?

Answer 1

Under Accrual Basis :-

Income statement

Particulars	Amounts in $
Revenues	4,500
Operating expenses
Salaries	1,325
Total operating expenses	1,325
Net income	3,175

Note: Traveling expenses $ 250 paid in 2018 but for 2019, so under accrual basis it will not been considered as expenses for 2018.

Revenue recognized on the basis of total earnings of 2018, Cash received or not during 2018 is not the subject concern of recording revenue under accrual basis.

Under Cash Basis :-

Income statement

Particulars	Amounts in $
Revenues	2,000
Operating expenses
Salaries	1,325
Traveling expenses	250
Total operating expenses	1,575
Net income	425

Note: Under Cash basis , expenses and income recorded only when cash is paid or received irrespective of their relationship with current year, previous year or any future year.