Homework Answers
1. Net Income After Adjustments = $ 4,900
Workings
| Net income After Adjustments | |
| Particulars | Amount |
| Revanue | 7,000.00 |
| Less: Expenses | 4,400.00 |
| Less: Depreciation | 1,800.00 |
| Less: Accrued Interest Expense | 700.00 |
| Less: Portion of prepaid Insurance expired during feb | 400.00 |
| Add:Revanue Collected in Advance that is now recognized | 2,500.00 |
| Add: Revaue recognized but not yet billed | 2,700.00 |
| Net Income After Adjustment | 4,900.00 |
2.Cash Basis Net Income in 2022 = $ 40,000
Workings
=Collection from customers during 2022 - Payment towards suppliers and expenses
= $190,000-$150,000
=$40,000
Explanation
Under the cash method, revenue is recorded when it is received, and expenses are recorded when they are paid. ... Subtract your total cash-basis expenses from your cash-basis income. The result is your net income using the cash -basis accounting method.
3. Net Income based on Accrual = $30,000
| Net income based on Accrual | |
| Particulars | Amount |
| Collection from Customers during 2022 | 190,000.00 |
| Less: Reciepts from recievables in 2021 | 40,000.00 |
| Less: Advance Reciepts for 2023 | 20,000.00 |
| Add: Revanue earned but not received cash | 60,000.00 |
| Add: Revanue earned against advance reciepts in 2021 | 25,000.00 |
| Revanue for 2022 (a) | 215,000.00 |
| Payment toward Expenses | 150,000.00 |
| Less:Advance Payments for 2023 | 22,000.00 |
| Less:Payment against accounts payable in 2021 | 50,000.00 |
| Add: Expenses Incurred but not Paid | 78,000.00 |
| Add: Expenses Incurred this year but payment paid in 2021 | 29,000.00 |
| Expenses for 2022 (b) | 185,000.00 |
| Net Income based on Accrual (a-b) | 30,000.00 |
Explanation
Accruals are revenues earned or expenses incurred which impact a company's net income on the income statement, although cash related to the transaction has not yet changed hands. Accruals also affect the balance sheet, as they involve non-cash assets and liabilities.
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