on Back 2. Wayne Rogers Corp. maintains its financial records on the cash basis

Question

on Back 2. Wayne Rogers Corp. maintains its financial records on the cash basis of accounting. Interested in sccuring a long-term loan from its regular bank, Wayne Rogers Corp. requests you as its independent CPA to convert its cash-basis income statement data to the accrual basis. You are provided with the following summarized data covering 2016, 2017, and 2018: 2016 2017 2018 Cash receipts from sales: On 2016 sales On 2017 sales On 2018 sales $295,000 $160,000 355,000 30,000 90,000 408,000 Cash payments for expenses: On 2016 expenses On 2017 expenses On 2018 expenses 185,000 40,000 67,000 160,000 45.000b 25,000 55,000 218,000 Prepayments of 2018 expenses. Prepayments of 2017 expenses. Instructions (a) Using the data above, prepare abbreviated income statements for the years 2017 and 2018 on the cash basis (b) Using the data above, prepare abbreviated income statements for the years 2017 and 2018 on the accrual basis

Explanation / Answer

Given that 2016 2017 2018 Total sales/expenses for accrual basis Cash receipt from sales on 2016 sales $      295,000 $      160,000 $         30,000 $            485,000 on 2017 sales $      355,000 $         90,000 $            445,000 on 2018 sales $      408,000 $            408,000 Total $      295,000 $      515,000 $      528,000 $        1,338,000 Cash payment for expense on 2016 expenses $      185,000 $         67,000 $         25,000 $            277,000 on 2017 expenses $         40,000 $      160,000 $         55,000 $            255,000 on 2018 expenses $         45,000 $      218,000 $            263,000 Total $      225,000 $      272,000 $      298,000 $            795,000 Answer a) Income statement based on cash basis of accounting Under cash basis of accounting sales and expenses are considered based on cash receipt and cash paid. 2016 2017 2018 Sales $      295,000 $      515,000 $      528,000 Less : Expenses $      225,000 $      272,000 $      298,000 income $         70,000 $      243,000 $      230,000 Answer b) Income statement based on accrual basis of accounting Under accrual basis of accounting sales and expenses are considered for the respective period irrespectively of actuals cash received or paid 2016 2017 2018 Sales $      485,000 $      445,000 $      408,000 Less expenses $      277,000 $      255,000 $      263,000 income $      208,000 $      190,000 $      145,000 Note : for accruals basis income statement sales and expenses figure are taken from "Total sales/expenses for accrual basis" column

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