The following is selected information from Alpha-Beta-Gamma Corporation for the
ID: 2345900 • Letter: T
Question
The following is selected information from Alpha-Beta-Gamma Corporation for the fiscal year ending October 31, 2010.Cash received from customers
$300,000
Revenue earned
350,000
Cash paid for expenses
170,000
Cash paid for computers on November 1, 2009 that will be used
for 3 years (annual depreciation is $16,000)
48,000
Expenses incurred, not including any depreciation
200,000
Proceeds from a bank loan, part of which was used to pay for
the computers
100,000
Based on the accrual basis of accounting, what is Alpha-Beta-Gamma Corporation
Explanation / Answer
assuming the corporation keeps accounts on accrual basis l) , total earnings = revenue earned = $350,000 expenses = $200,000 + $16,000 (depreciation) = $2,16,000 net income = $350,000 - $216,000 = $1,34,000 ANSWER on accrual basis, a revenue is recognized when the customer becomes legally liable to pay , whether or not they pay on a later date. similarly, the expoenses are recognized as soon as the firm becomes legally liable to paythem, even if they actually pay them on a later date. payment for the computer is not an expense, it is a capital expenditure, as its benefit will be available for more than a year. remember, on accrual basis, the date of receiving or paying of money is not important at all. what is mportant is the date on which it became poayable.
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