Question

Haskins and Jones, Attorneys-at-Law, maintains its books on a cash basis. During 2021, the law firm collected $590,000 for services rendered to its clients and paid out $421,000 in expenses. You are able to determine the following information about accounts receivable, prepaid expenses, deferred service revenue, and accrued liabilities: Accounts receivable Prepaid insurance Prepaid rent Deferred service revenue Accrued liabilities (for various expenses) January 1, 2021 $ 71,000 5,400 10,100 10,100 December 31, 2021 $67,000 7,200 8,300 12,400 13, 100 16,900 In addition, 2021 depreciation expense on office equipment is $26,500. Required: Determine accrual basis net income for 2021. Add: Deduct:

Answer 1

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Answer 169,000 1,800 Cash Basis Income (590,000 - 421,000) Add: Increase in Prepaid insurance (7,200 - 5,400) Subtract: Decrease in accounts receivables (71,000 - 67,000) Decrease in Prepaid Rent (10,100 - 8,300) Increase in accrued liability (16,900 - 13,100) Depreciation Expense Increase in Deferred Service Revenue (12,400 - 10,100) Accrual basis net income 4,000 1,800 3,800 26,500 2,300 132,400