2. ABC Company uses cash-basis accounting for its records. During 2017, ABC coll

Question

2. ABC Company uses cash-basis accounting for its records. During 2017, ABC collected $400,000 from its customers, made payments of $300,000 to its suppliers for inventory (e.g "Purchases" account), and paid $140,000 for operating costs. ABC wants to prepare accrual-basis financial statements. In gathering information for the accrual-basis financial statements, ABC discovered the following: Customers owed ABC $45,000 at the beginning of 2017 and $55,000 at the end of 2017 ABC owed suppliers $20,000 at the beginning of 2017 and $28,000 at the end of 2017 ABC's beginning inventory was $40,000 and its ending inventory was $44,000. What should ABC's Gross Profit be on the accrual basis? Question 2 HINT: Do you remember the COGS formula? As a reminder, here it is: Beginning Inventory

Explanation / Answer

Gross profit on accrual basis: $106000

Working:

Gross profit = Sales - Cost of goods sold = $410000 - $304000 = $106000

Accounts Receivable Beg. Bal. 45000 400000 Collections Sales 410000 End. Bal. 55000 Accounts Payable Beg. Bal. 20000 Payments 300000 308000 Purchases End. Bal. 28000 Inventory Beg. Bal. 40000 Purchases 308000 304000 Cost of goods sold End. Bal. 44000

Related Questions

Navigate

• Browse (All)
• Browse 2
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.