Question

Sheepskin Company had the following transactions during 2008. • Sales of $5,500 on account • Collected $2,225 for services to be performed in 2009 • Paid $600 cash in salaries • Purchased airline tickets for $255 in December for a trip to take place in 2009 15. What is Sheepskin’s 2008 net income using accrual accounting?

a. $3,875

b. $5,875

c. $4,900

d. $3,625 16.

What is Sheepskin’s 2008 net income using cash basis accounting?

Answer 1

• Under Accrual system, revenues are recorded when they are earned, whether cash has been received or not. Also, expenses are recorded when they are incurred whether the cash has been paid or not.
• Under Cash system, revenues and expenses received and paid in cash are recorded only.
• Question 1

Sales revenue	$                               5,500.00
Salaries expenses	$                                 (600.00)
Net Income using Accrual accounting	$                               4,900.00

• Question 2

Sales revenue	$                               2,225.00
Salaries expenses	$                                 (600.00)
Tickets purchased	$                                 (255.00)
Net Income using Cash basis accounting	$                               1,370.00