Question

On May 1, the bank said it may lend money to Nim Com Soup, Inc. The amount will depend on Nim Com Soup's income statement for the month of May. Since the bank did not specify, Nim Com Soup did not follow generally accepted accounting principles (GAAP). It reported net income for the month ended May 31 of $70,000. The revenue included $2,000 of cash collected in advance from customers for services to be performed in June. The revenue also included a $12,000 increase in the value of its land. The expenses excluded $3,000 it owed for services it received in May. What is Nim Com Soup's GAAP Net Income?

Answer 1

As per genralally accepted accounting principles , Accrual method need to be followed for Accounting .

Nim Com Soups Income as per GAAP's :

Net Income reported = $ 70000

Less: Cash collected in Advance whose service will due in June = ( $2000)

Less: the increase in value need to be transfer in revaluation reserve that will decrease the profit =( $12000)

Less: Expense need to be accounted as service getting due in may itself = ($3000)

So Net income as per GAAP's = $ 53000 (70000-2000-12000-3000)