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    Cash Basis Net Income

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    O'Hara Inc. made sales of $350,000 during 2008, its first year of operations. Of this $10,000 remained in accounts receivable at the end of the year. Additionally, the company paid and incurred $200,000 in expenses during the year. The company also prepaid $2,000 of it's 2009 insurance and recorded $4,000 of depreciation expense in December 2008.

    What is the company's cash basis net income?
    350,000 sales - 10,000 accts receivable = 340,000

    200,000 incurred and paid + 2,000 prepaid insurance = 202,000

    My answer is $138,000, but I'm not sure that's right...

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    Solution Summary

    This solution calculates the net income for a company based on a cash basis.