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    Matt Morgan: Compute net income using cash and accrual basis

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    On December 31, 2009, Matt Morgan completed the first year of operations for his new computer
    retail store. The following data were obtained from the company's accounting records:

    Sales to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $197,000
    Collections from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,000
    Interest earned and received on savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
    Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,500
    Amounts paid to suppliers for inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,000
    Wages owed to employees at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
    Wages paid to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
    Utility bill owed: to be paid next month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100
    Interest due at 12/31 on loan to be paid in March of next year . . . . . . . . . . . . . . . . . . . . . . 1,200
    Amount paid for one and one-half years' rent, beginning Jan. 1, 2009 . . . . . . . . . . . . . . . . . 17,500
    Income taxes owed at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000

    1. How much net income (loss) should Matt report for the year ended December 31, 2009,
    according to (a) cash-basis accounting and (b) accrual-basis accounting?

    2. Which basis of accounting provides the better measure of operating results for Matt?

    © BrainMass Inc. brainmass.com June 3, 2020, 11:49 pm ad1c9bdddf
    https://brainmass.com/business/cash-vs-accrual-accounting/matt-morgan-compute-net-income-using-cash-accrual-basis-300898

    Solution Summary

    The expert computes the net income using cash and accrual basis.

    $2.19

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