Question

Rebel Technology maintains its records using cash-basis accounting. During the year, thecompany received cash from customers, $50,000, and paid cash for salaries, $21,900. At thebeginning of the year, customers owe Rebel $1,100. By the end of the year, customers owe$8,000. At the beginning of the year, Rebel owes salaries of $7,000. At the end of the year, Rebelowes salaries of $4,000. Determine cash-basis net income and accrual-basis net income for theyear.

Answer 1

For cash-basis net income, Rebel Tech's net income is $28,100. For accrual-basis net income, Rebel Tech's net income is $32,000.

Step-by-step explanation:

For cash-basis net income, we only consider cash transactions. So, the cash received from customers of $50,000 is counted as revenue, and the cash paid for salaries of $21,900 is counted as an expense. Therefore, the cash-basis net income is $50,000 - $21,900 = $28,100.

For accrual-basis net income, we need to consider both cash and non-cash transactions. We start with the cash transactions: revenue of $50,000 and expense of $21,900. Then, we account for the changes in accounts receivable and accounts payable. At the beginning of the year, customers owe $1,100, and at the end of the year, they owe $8,000. This represents an increase in accounts receivable of $8,000 - $1,100 = $6,900. Similarly, at the beginning of the year, Rebel owes salaries of $7,000, and at the end of the year, they owe $4,000. This represents a decrease in accounts payable of $7,000 - $4,000 = $3,000.

So, the accrual-basis net income is $50,000 - $21,900 + $6,900 - $3,000 = $32,000.