Question

Brenner, inc. “earned” fees of $150,000 of which $100,000 was collected. brenner Inc. also incurred $65,000 in expenses, of which $35,000 were psid

under cash accounting what was the net income for the period.?

under accrual basis accounting, what was net income ?

Answer 1

Answer:

Businesses that use cash basis accounting recognize income and expenses only when money changes hands. Here, revenue is reported on the income statement only when cash is received and expenses are recorded when the cash is paid out. The cash method is mostly used by small businesses.

Businesses that use accrual accounting recognize income as soon as they raise an invoice for a customer. Here, revenue is accounted for when it is actually earned and expenses are recorded when they are actually incurred despite no cash being paid out.

Net income under Cash basis accounting

Fees Collected = $100,000

Expenses Paid = $35,000

Net Income = ($100,000 - $35,000)

                   = $65,000

Net income under Accrual basis accounting

Fees Earned = $150,000

Expenses Incurred = $65,000

Net Income = ($150,000 - $65,000)

                   = $85,000