Cash and Accrual Methods. Carmen opens a retail store. Her sales during the first year are $600,000, of which $30,000 has not been collected at year-end. Her purchases are $400,000. She still owes $20,000 to her suppliers, and at year-end she has $50,000 of inventory on hand. She incurred operating expenses of $160,000. At year-end she has not
paid $15,000 of the expenses.
a. Compute her net income from the business assuming she elects the accrual method.
b. Compute her net income from the business assuming she elects the cash method.
c. Would paying the $15,000 she owes for operating expenses before year-end change her
net income under accrual method of reporting? under the cash method?
The expert examines the net income for business expenses.