Question

Payson Sports, Inc., sells sports equipment to customers. Its fiscal year ends on December 31. The following transactions occurred in the current year a. Purchased $250,000 of new sports equipment inventory, paid $90,000 in cash and owed the rest on account b. Paid employees $180,300 in wages for work during the year, an additional $3.700 for the current year's wage will be paid in January of the next year. c. Sold sports equipment to customers for $750,000; received $500,000 in cash with the customers owing the rest on account. The cost of the equipment was $485.000 d. Paid $17.200 cash for utilities for the year. e. Received $70,000 from customers as deposits on orders of new winter sports equipment to be sold to the customers in January of the next year. f. Received a $1,930 utilities bill for December of the current year that will be paid in January of the next year Required: 1. Complete the following statements: Accrual Basis Income Statement Revenues Sales to customers Cash Basis Income Statement Revenues Cash sales Customer deposits Expenses Inventory purchases Wages paid Utilities paid Net Income Expenses Cost of sales Wages expense Utilities expense Net income 2. Which basis of accounting (cash or accrual) provides more useful information to investors, creditors, and other users? O Cash basis O Accrual basis

Answer 1

Cash Basis income statement Cash sales $ 500,000 Customer deposits $ 70,000 Accrual basis income statement Sales to customer $750,000 Cost of sales Inventory purchases wages paid utilities paid $ $ 90,000 180,300 17.200 wages expense utilities expense $485,000 $184,000 $ 19,130 $ Net income S 282,500 Net income $ 61,870 2 Accrual basis Because accrual basis recognizes income and expenditure based on incurred amount. In case of cash accounting it might not cover all income and expenses incurred if it is not received / paid during the year so accrual basis of accounting provides more useful information than cash basis