e cash basis and the accrual basis of accounting.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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
Transcribed Image Text:In its first year of operations, Roma Company reports the following.
• Earned revenues of $45,000 ($37,000 cash received from customers).
• Incurred expenses of $25,500 ($20,250 cash paid toward them).
Prepaid $6,750 cash for costs that will not be expensed until next year.
Compute Roma's first-year net income under the cash basis and the accrual basis of accounting.
Revenues
Expenses
Net income
Cash Basis
Accrual Basis
Expert Solution
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Step 1
Cash Basis and accrual Basis are accounting methods that differ in revenue and expense recognition. In Cash Basis, revenues and expenses get recognized when payment is made and cash is received. Under accrual basis, only revenues and expenses incurred for that period are recognized.
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