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juliann5640
27.02.2020 •
Business
In its first year of operations, Crane Company recognized $31,700 in service revenue, $7,700 of which was on account and stil outstanding at year-end. The remaining $24,000 was received in cash from customers. The company incurred operating expenses of $16,600, of these expenses, $12,690 were paid in cash; $3,910 was stil owed on account at year-end. In addtion, Crane prepaid $3,260 for insurance coverage thet would not be used until the second year of cperations (a) Calcuate the first year's net earnings under the cash basis of accounting, and caleulate the irst years net earnings under the accrual basis of accouriting (b) which basis of accounting (cash or accrual) provides more useful information for decision-makers?
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Ответ:
Explanation:
a. The computation of the net earnings under the cash basis of accounting and the accrual basis of accounting are as follows:
Cash basis of accounting
Service revenue $24,000 ($31,700 - $7,700)
Less:
Operating expenses -$12,690
Prepaid insurance -$3,260
Net earnings $8,050
Accrual basis of accounting
Service revenue $31,700
Less:
Operating expenses -$16,600
Net earnings $15,100
b. The accrual basis of accounting is more useful as compare to the cash basis of accounting as it recognizes the revenues when it is earned and the expenses when it is incurred
Ответ: