CALCULATOR FULL SCREEN PRINTER VERSION BACK NEXT Exercise 4-5 In its first year

Question

CALCULATOR FULL SCREEN PRINTER VERSION BACK NEXT Exercise 4-5 In its first year of operations, Cullumber Company recognized $33,700 in service revenue, $6,700 of which wes on account and still outstanding at year-end. The remaining $27,000 was received in cash from customers The company incurred operating expenses of $17,100. Of these expenses, $13,300 were paid in cash; $3,800 was still owed on account at year-end. In addition, Cullumber prepaid $2,730 for insurance coverage that would not be used until the second year of operations. (a) Calculate the first year's net earnings under the cash basis of accounting, and calculate the first year's net earnings under the accrual basis of accounting Cash Basis Accrual Basis Net Income s (b) Which basis of accounting (cash or accrual) provides more useful information for decision-makers? Click if you would like to Show Work for this question: Qpen Show Work INK TO TEXT Question Attempts: 0 of 10 used SAVE FOR LATER SUBMIT ANSWER

Explanation / Answer

Net Operating Income by cash basis and accrual basis are as computed below:

Accrual method of accounting is more useful for decision makers as this method helps is understanding company's position in a better way.

Cash Basis Accrual Basis Service Revenue 27,000 33,700 Less: expenses Operating expenses 13,300 17,100 Prepaid Insurance 2,730 Operating Income 10,970 16,600

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