How do you calculate net income under cash basis and accrual basis of accounting?

Question

Conan Industries collected $100,000 from customers in 2010. Of the amount collected, $25,000 was from revenue earned on account in 2009. In addition, Conan earned $40,000 of revenue in 2010, which will not be collected until 2011.

Conan Industries also paid $70,000 for expenses in 2010. Of the amount paid, $30,000 was for expenses incurred on account in 2009. In addition, Conan incurred $42,000 of expenses in 2010, which will not be paid until 2011.

Thanks.

Answer 1

Best Answer - Chosen by Voters

Dear nw: Accrual accounting considers income when billed. First paragraph $100,000 accrual would only consider $75,000 as income because $25,000 was on the books in '09. Cash =$100,000

Of the $40,000 revenue, accrual would report all of it while cash would not report it until actually collected. etc etc.