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Requirement Assume that all supplies purchased were used in operations in the year of purchase. Rental payments pertain to rental space used in the year of payment. 1. Prepare an income statement for for and under both the cash and the accrual basis of accounting. 2. Compute operating cash flow for both years under cash and accrual bases.

Sagot :

anthougo

Question Completion:

You are provided the following information for the Del Campo Consulting Associates.

                                                            2019   2018

Service revenue (accrual basis) $250,000 $185,000

Cash collected from clients             97,000    80,000

Operating expenses:

Salary expense (accrual basis)        12,000     16,500

Purchased supplies for cash             4,000      2,500

Purchased supplies on account        1,000       1,500

Depreciation expense                      2,000      2,000

Rent paid in cash                              7,000       3,000

Prepaid insurance                            5,500         0

Answer:

Del Campo Consulting Associates

                                                Accrual Basis                Cash Basis

Income Statements                2019        2018            2019        2018

Service revenue               $250,000   $185,000     $97,000    $80,000

Operating Expenses:

Salary expense                      12,000       16,500         0                0

Supplies                                  5,000         4,000         4,000         2,500

Depreciation                           2,000        2,000          0                 0

Rent                                         7,000        3,000          7,000        3,000

Prepaid Insurance                  0                0                 5,500        0

Total operating expenses $26,000   $25,500      $16,500     $5,500

Net income                      $224,000  $159,500     $80,500   $74,500

2. Compute Operating Cash Flow under cash and accrual basis:

                                                  Accrual Basis                Cash Basis

Operating Cash Flow             2019        2018              2019        2018

Cash collected from clients $80,500   $74,500     $80,500   $74,500

Purchased supplies                (4,000)     (2,500)        (4,000)     (2,500)

Rent paid in cash                    (7,000)     (3,000)        (7,000)     (3,000)

Prepaid insurance                  (5,500)                         (5,500)

Net operating cash flows   $64,000  $69,000      $64,000  $69,000

Explanation:

The net income reported the accrual basis and that reported under the cash basis are different.  The accrual basis considers all revenue whether actually received or not, the cash basis only considers cash received from clients in each period.  However, the net operating cash flows under the two bases are the same.  The reason for this is that only actual cash flows are considered under the two bases.

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