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Question 1 Not yet answered Marked out of 1.00 P Flag question In its first year of operations, Harrington Pty Ltd earned $115000 in services revenue, $65550 of which was on account and still outstanding at the end of the reporting period. The remaining $49450 was received in cash from customers. The company paid expenses of $44850 in cash. Included in the $44850 paid is $15250 for insurance coverage that will not be used until the second year. Additionally, there is $31400 still owing on account at the end of the reporting period. Important: - In the answers below, do not include "$" sign or any thousands separators, i.e. $46,000 should be written as 46000. Include the minus (-) sign only for the cash-based or accrual-based profit if the amount is negative. Do not include the minus (-) sign for expenses. Required a. Apply cash accounting to calculate the first year profit of Harrington Pty Ltd. Income = $ Expenses = $ Cash-based profit = $ b. Apply accrual accounting to calculate the first year profit of Harrington Pty Ltd. Income = $ Expenses = $ Accrual-based profit = $
Answer (1)
The cash basis of accounting recognizes Revenues when cash is received and Expenses when they are paid ,So
Income= Cash Receipts = $49,450
Expenses= Cash Payments = $44,850
Cash based profit =Income - Expenses = $49,450 - $44,850 = $4,600
Answer (2)
Income= Sales Revenue =$115,000
Expenses= Expenses paid - Prepaid Expenses + Outstanding Expenses
= $44,850 - $15,250 + $ 31,400 = $61,000
Accural based profit=Income - Expenses =$115,000 - $61,000 = $54,000
