Question

Metlock Industries collected $100,800 from customers in 2022. Of the amount collected, $24,000 was for services performed in 2021. In addition, Metlock performed services worth $38,400 in 2022, which will not be collected until 2023.

Metlock Industries also paid $69,120 for expenses in 2022. Of the amount paid, $28,800 was for expenses incurred on account in 2021. In addition, Metlock incurred $40,320 of expenses in 2022, which will not be paid until 2023.

(a)

Compute 2022 cash-basis net income.

Cash-basis net income

$enter the cash-basis net income in dollars

(b)

Compute 2022 accrual-basis net income.

Accrual-basis net income

$enter the accrual-basis net income in dollars

Answer 1

Question A

Cash Basis Net Income

Particulars	Amount
Revenue	100,800
Less: Expenses	69,120
Net Income	31,680

Notes

Under Cash Basis Method Revenue is recognised when cash is received not when services are performed so cash collection of $ 100,800 will be recognised as Revenues for Year 2022.

Similarly Payment for Expenses of $ 69,120 will be treated as Expenses for Year 2022.

Question 2

Accrual Basis Net Income Calculation

Particulars	Amount
Revenue	115,200
Less : Expenses	80,640
Net Income	34,560

Notes

Under Accrual Basis of Accounting Income is recognised when it is earned not when it is received and similarly Expenses are account for in the year of incurrence and not in the year of payment.

Calculation of Revenue and Expense as per Accrual basis of Accounting

Revenue = Cash Collection + Services to be collected in Year 2023 - Collection for Services performed in Year 2021

= 100,800 + 38,400 - 24,000

= $ 115,200

Expenses = Payment of Expenses in Year 2022 - Payment for Expenses of Year 2021 + Expenses to be paid in Year 2023

= 69,120 - 28,800 + 40,320

= $ 80,640