Question

What is the solution for question C?

à homework1-2019 a Search in Document Home Insert Draw Design Layout References Mailings Review View Share P comments 龟.da | Times New v 12 v A"A" Aa v Ap -v-v-v -- 2+ Heading 1 Strong No SpscingSube E Cash vs. Acerual Accounting 1, Consider the amount and timing of the following transactions made by I.M. Farmer Novembat 2018 Purchased, paid for and applied fertilizer for the 2019 grain crop $38,000. b. March 2019 Purchased and paid for seed, chemicals, fuel, other variable costs. $65,000 c. Oetober 2019 Purchased and charged to account fuel for drying. $4,000. d. November 2019 Part of grain sold for S72,000. Rest placed in storage, valued at S70,000. e. December 31, 2019 Accrued interest totals $1,200, f January 2020 Paid bill for fuel used to dry grain $4,000 8. January 2020 Paid accrued interest, $1,200. h. May 2020 Remaining 2014 grain sold. S65,000. A) What is the 2019 profit under cash accounting? (Show work) B) What is the 2019 profit under accrual accounting? (Show work.) C) Which system is the most accurate reflection of actual farm profit? Why Page 1 of 1 155 words English | United States) Focus + 100%

Answer 1

Solution:

	Impact in 2019
	Cash Based	Accrual Based
Nov-18	Nil	-38,000
Mar-19	-65,000	-65,000
Oct-19	Nil	-4,000
Nov-19	72,000	70,000
Dec-19	Nil	1,200
Jan-20	Nil	-4,000
Jan-20	Nil	-1,200
May-20	Nil	65,000
	7,000	24,000

The profits as computed above are different under both methods. Accrual based accounting reflects more profit compared to cash based accounting. In accrual based accounting, revenues and expenses are recorded when they are earned, regardless of when the money is actually paid or received. Since accrual based provides the true profitability in the farm business thus is more preferable.