Question

John has the following transactions for the year: Cash received from sales of products $120,000 Cash paid for expenses (except rent and interest) $35,000 Rent paid on a leased building for 18 months beginning December 1 $40,500 Prepaid interest on a bank loan, paid on November 1, for the next 6 months $12,000 Four months' rent received on a leased building, on December 1 $10,000 Instructions: Calculate John's income under the cash basis for his business. You must show your work computations to receive full credit.

Answer 1

John

John's business income, based on a cash basis:

= $42,500

Step-by-step explanation:

a) Data and Calculations:

Cash received from sales of products $120,000

Four months' rent received

on a leased building, on December 1 $10,000

Total receipts $130,000

Cash paid for expenses

(except rent and interest) $35,000

Rent paid on a leased building

for 18 months beginning December 1 $40,500

Prepaid interest on a bank loan, paid on

November 1, for the next 6 months $12,000

Total expenses $87,500

Income $42,500

b) Under the cash basis, accounting for a business does not differentiate the period the expenses and revenue are incurred. The only issue for consideration is the time cash is exchanged.