Question

Register CALCULATOR PRINTER VERSION 4 BACK NEXT Exercise 3-18 Michelle Walker, M.D., maintains the accounting records of Walker Clinic on a cash basis. During 2020, Dr. Walker collected $152,353 from her patients and paid $52,375 in expenses. At January 1, 2020, and December 31, 2020, she had accounts receivable, unearned service revenue, accrued expenses, and prepaid expenses as follows. (All long-lived assets are rented.) January 1, 2020 December 31, 2020 Accounts receivable $8,595 $16,162 Unearned service revenue 3,068 4,456 Accrued expenses 3,320 2,049 Prepaid expenses 2,035 3,078 Prepare a schedule that converts Dr. Walker's "excess of cash collected over cash disbursed" for the year 2020 to net income on an accrual basis for the year 2020. MICHELLE WALKER, M.D. Conversion of Cash Basis to Accrual Basis For the Year 2020 $ $1 Click if you would like to Show Work for this question: Open Show Work LINK TO TEXT

Answer 1

Dear student,

There are two methods of accounting.

1.cash basis

2. Accrual basis

There are some steps involved in converting the cash basis accounts into accrual basis.

I have given the solution in step 1 and 2 . and you can find the calculations in step 3 and explanations in step 4.

See the solution in below attached images.

Solution 1. Calculation of Excess of Cash collected over Cash disbursed. $ 152,353 Cash Collected B. Less: Cash disbursed ($ 52,375 ) Excess of A over B $ 99,978 Schedule that Convents ". Excess of Cash Collected cash disbursed to net income Accrual basis.. over Excess of Cash Collected over Cash disbursed (as Calculated in Step 1) $ 99,978 2 564 Add: Increase in Account- Receivables Less: Inc. in Unearned Revenue (1,388) Add: Decrease in Accrued Exp. 1,271 Add: Increase in Prepaid Exp. 1,043 Income on Accrual Basis $ 108,441 (See Table 3 for Calculations)

3. Table Showing increase in Assets & liabilities. or Decrease 1.1.20 31. 12.20 Increase Decrease Account Receivable $8,595 $ 16,162 $ 7,567 Unearned Revenue 3,068 4,456 1388 3,320 2,049 1,271 Prepaid Expo 2,035 3,078 1,043 Accrued Exb. Explainations? Account Receivables is increased, which shows that services revenue which has not been received in cash is increased during the year. Thus it is added in Excess of Cash Collected over Cash Koins bursed. 2. Unearned Revenue is income which is received in advance. It is received in cash for the services that are yet to be given. Thus it will hot be part of current year's Income. So Increase in Unearned revenue be deducted. الأحي

3. Accrued Expenses are expenses which are incurred but not get paid in Cash. Any Decrease in Accrued Exp. during the year shows that the last year Accrued exp. are paid in Cash in Current year Thus the current years cash disbursement include the amount of last years Accrued Exp. paid. Thus Accrued Exp. Decrease amount will be added back. 4. Prepaid Exp. are Exp. that are not yet incurred but paid in Advance. An increase in Prepaid Exp. indicates that Cash is paid for Exp. which does not relate or incurred in Current Year Thus the increase in Prepaid Exp- will be added back. The Income & Exp. only related to Current year are to be considered when we calculate income on Accrual basis. Its irrelevant whether the Cash is read. or paid in the current Year or not > (FINISH SH)

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