Question

Primo Industries collected $105,000 from customers in 2020. Of the amount collected, $25,000 was for services performed in 2019. In addition, Primo performed services worth $40,000 in 2020, which will not be collected until 2021.

Primo Industries also paid $72,000 for expenses in 2020. Of the amount paid, $30,000 was for expenses incurred on account in 2019. In addition, Primo incurred $42,000 of expenses in 2020, which will not be paid until 2021.

a)
Compute 2020 cash-basis net income.
   
Cash-basis net income $□□□□□

b)
Compute 2020 accrual-basis net income.
     
Accrual-basis net income $□□□□□

please help me solve this problem

Answer 1

Under cash basis, income and expenses will recognize based on cash receipt / cash payments.

Under accrual basis, income and expenses will recognize based on income accrued / expenses incurred. under accrual basis, cash payments / receipt will not be a factor

a)

Cash collected from customers	$   105,000
Less: Cash paid for expenses	$   (72,000)
Cash-basis net income	$     33,000

b)

Service performed during the year ($105,000-$25,000+$40,000)	$   120,000
Less: Expenses incurred ($72,000-30,000+42,000)	$   (84,000)
Accrual-basis net income	$     36,000

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