Question

. Smith Company had the following transactions during 2020: Sales of $10,800 on account Collected $4,800 for services to be performed in 2021 Paid $2,800 cash in salaries Purchased airline tickets for $500 in December for a trip to take place in 2021 . . What is Smith's 2020 net income using cash basis accounting? $1,500 $2,800 $4,300 $4,800

Answer 1

Smith's Net Income using Cash basis accounting Particulars Amount Collected amount for services $ 4,800 Less: paid for salaries $ -2,800 Less: purchased airline tickets $ -500 Net income using cash basis accounting $ 1,500 In cash basis accounting, only amount collected or expensed/spended is taken into account while calculating net income and preparing and closing accounts. I hope this solves your doubt. Feel free to comment if you still have any query or need something else. I'll help asap. Do give a thumbs up if you find this helpful.