Special Purpose Framework

Question 1

A company has an income amounting to $50,000 which was calculated on a cash basis. Using the information given below, calculate the income to be reported using the accrual basis of accounting:

Particulars Beginning Ending
Accounts Payable 4,000 3,300
Unearned Revenue 1,000 1,800
Prepaid Insurance 800 700
Accounts Receivable 2,000 2,600

Answer 1

Income under Cash Basis of Accounting $50,000
(+) Decrease in Accounts Payable $700
(-) Increase in Unearned Revenue ($800)
(-) Decrease in Prepaid Insurance ($100)
(+) Increase in Accounts Receivable $600
Income under Accrual Basis of Accounting $50,400