Answer to Question #239241 in Accounting for mafi

Question

Assume that ABC contractor begins an agreement to construct to small bridge for $50000.in January ,ABC begins construction incurs cost of $35000 on credit and by the end of January delivers finished bridge to the owner. In the February ABC collects $50000 cash from the customer. in march ABC pays the $35000 due to the creditor.

Required:-show the net income of each month under cash basis and accrual basis of accounting.

Answer 1

Solution:

The net income under cash basis and accrual basis are as below:

Note that net income under the cash basis of accounting will only apply in February since this is when the actual revenue and expense were received and paid out.

The net income under the accrual basis of accounting will only apply in January since this is when the revenue and expense occur.