Question

Jill Ardo, M.D., maintains the accounting records of Accardo Clinic on a cash basis. During 2020, Dr. Ardo collected $142,600 from her patients and paid $55,470 in expenses. At January 1, 2020, and December 31, 2020, she had accounts receivable, unearned service revenue, wages payable, and prepaid insurance as follows. (All long-lived assets are rented.) 1-Jan-20 31-Dec-20 $9,250 $15,927 2,840 4,111 Accounts receivable Unearned service revenue Wages Payable Prepaid Insurance 3,435 2,108 1,917 3,232 CASH BASED REVENUE (CBR) ACCRUAL BASED REVENUE (ABR) CASH BASED EXPENSE (CBE) ACCRUAL BASED EXPENSE (ABE) NET INCOME
Please explain because I am trying to understand the process

Answer 1

Notes:

1) Cash Based Revenue:Revenue which is recognised at the time cash is received.

2) Cash Based Expense:Expense which is recognised at the time cash is paid out.

3) Accrual Based Revenue:Revenue is accounted when it is earned. Typically,revenue is recorded before any money changes hands

4) Accrual Based Expense:Expense is recorded in the accounting period in which it is incurred.

Answer No.1) Accardo Clinic

Cash based revenue = Cash collected from patients = $142,600

Cash based expense = Cash paid for expenses = $55,470

Accrual based revenue calculation:

Cash based revenue $142,600

Add: Unearned service revenue as on 1-jan-20 $2,840

Less:Unearned service revenue as on 31-dec-20 $4,100

Add:Accounts receivable as on 31-dec-20 $15,927

Less: Accounts receivable as on 1-jan-20 $9,250   

Accrual based revenue =     $148,017

Accrual based expense calculation:

Cash based expense $55,470

Add: Wages payable as on 31-dec-20 $2,108

Less: Wages payable as on 1-jan-20 $3,435

Add: Prepaid insurance as on 1-jan-20 $1,917

Less: Prepaid insurance as on 31-dec-20 $3,232

Accrual based expense = $52,828

NET INCOME(as per cash basis) = $142,600 - $55,470 =   $87,130

NET INCOME(as per accrual basis) = $148,017 - $52,828 = $95,189

Answer No. 2) XYZ Company

ACCOUNTS RECEIVABLE ACCOUNT

Opening Balance	15,000	Cash Receipts	167,000
Sales(balancing figure)	170,600	Closing Balance	18,600
	185,600		185,600

(a) Service Revenue i.e, Sales = $170,600

PREPAID EXPENSE ACCOUNT

Opening Balance	17,000	Operating Expense(balancing figure)	113,800
Cash payment to expense	122,000	Closing Balance	25,200
	139,000		139,000

  (b) Operating Expense = $113,800