Converting cash to accrual basis accounting
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Cash to Accrual Accounting
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Mr. Pitt has relented and agrees to provide you with the information necessary to convert his
cash basis financial statements to accrual basis statement. He provides you with the following
transaction info for the fiscal year ending December 31, 2009:
1. A comprehensive insurance policy requires a payment every year for the upcoming year. The
last payment of $ 12,000 was made on Sept. 1, 2009
2. Mr. Pitt allow customers to pay using a credit card. At the end of the current year, various credit
card companies owed Mr. Pitt $ 6,500. At the end of last year, customer credit card charges outstanding
were $ 5,000.
3.Employees are paid once a month, on the 10th of the month following the work period. Cash
disbursements to employees were $ 8,200 and $7,200 for January 10, 2010 and January 10, 2009, respectively
4. Utility bills outstanding totaled $ 1,200 at the end of 2009 and $ 900 at the end of 2008
5. A physical count of inventory is always taken at the end of the fiscal year. The merchandise on
hand at the end of 2009 cost $ 35,000. At the end of 2008, inventory on hand cost $ 32,000
6. At the end of 2008, Mr. Pitt did not have any bills outstanding to suppliers of merchandise. However,
at the end of 2009, he owed suppliers $ 4,000
*Mr. Pitt's 2009 cash basis net income ( including depreciation expense) is $ 26,000. Determine net income
applying the accrual accounting model.
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Solution Summary
Converting cash to accrual basis accounting is achieved.
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