Question

Exercise 3 – Accrual vs. cash accounting: Taos Corporation sells beauty products. The company's fiscal year ends on December 31. The following transactions occurred in 2019 (assume no income taxes are incurred): a. Purchased $470,000 of soaps from its supplier on account. b. Paid $61,000 in wages to employees for work performed in 2019. In addition, $94,000 of wages for work performed in 2018 were paid in January 2019, and $7,000 of wages for work performed in December 2019 will be paid in January 2020. Paid $24,000 on May1, 2019 for an insurance plan that lasts 2 years. d. Sold $591,000 of soaps in 2019. One-third of the amount was paid in cash and the rest is owed to the company and will be paid in 2020. The cost of goods sold is $330,000./ Received a $350 utility bill for December 2019. The bill was paid in 2020. c. e. Required: Complete the following cash-based and accrual-based (single-step) income statements. Cash-basis income statement Revenues Cash sales Total revenues Expenses Wages paid Insurance paid Total expenses: Net Loss Accrual-basis income statement Revenues Sales to customers Total revenues Expenses Cost of sales Wage expense Utilities expense Insurance expense Total expenses: Net Income

Answer 1

1.)	Cash basis Income Statement	Amount $
	Revenues
	Cash Sales ( 591,000 x 1/3)	197,000
	Total Revenue
	Expenses
	Wages paid (61,000 + 94,000 )	155,000
	Insurance paid	24,000
	Total Expenses	179,000
	Net Income (Loss)	18,000
2.)	Accrual basis Income Statement	Amount $
	Revenues
	Sales to Customers	591,000
	Total Revenue
	Expenses
	Cost of sales	330,000
	Wages expense ( 61,000 + 7,000 )	68,000
	Utilities Expense	350
	Insurance expense ( 24,000 x 8/24)	8,000
	Total Expenses	406,350
	Net Income (Loss)	184,650