Haskins and Jones, Attorneys-at-Law, maintain its books on a cash basis. During

Question

Haskins and Jones, Attorneys-at-Law, maintain its books on a cash basis. During 2018, the company collected $635,000 in fees from its clients and paid out $430,000 in expenses. You are able to determine the following information about accounts receivable, prepaid expenses, deferred fee revenue, and accrued liabilities:
  

  
In addition, 2018 depreciation expense on furniture and fixtures is $31,000.

Required:
Determine accrual basis net income for 2018.
  

January 1,
2018 December 31,
2018 Accounts receivable $ 80,000 $ 76,000 Prepaid insurance 6,300 8,100 Prepaid rent 11,000 9,100 Deferred fee revenue 11,000 13,200 Accrued liabilities
(for various expenses) 14,000 18,700

Explanation / Answer

Accrual basis net income for 2018 is as calculated below:

Under the accrual method Income and expenses is recorded as and when it is earned or incurred.

Revenue Fees collected from clients 635,000 Decrease in account receivable -4,000 Increase in deferred fee revenue -2,200 628,800 Expenses Expenses paid 430,000 Increase in prepaid Insurance -1,800 Decrease in prepaid rent 1,900 Increase in accrued liabilities 4,700 Depreciation on furniture and fixtures 31,000 465,800 Net Income 163,000

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