that were acceptable to its customers and billed those customers for $620,000. However, Cude collected only $520,000 cash in Year 1, and the remaining $100,000 was collected in Year 2. Cude’s employees earned $300,000 in Year 1 wages that were not paid until the first week of Year 2. Based only on this information, ho
that were acceptable to its customers and billed those customers for $620,000. However, Cude collected only $520,000 cash in Year 1, and the remaining $100,000 was collected in Year 2. Cude’s employees earned $300,000 in Year 1 wages that were not paid until the first week of Year 2. Based only on this information, ho
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Cude Corp., a start‑up company, uses the accrual basis of accounting. In Year 1, Cude provided services that were acceptable to its customers and billed those customers for $620,000. However, Cude collected only $520,000 cash in Year 1, and the remaining $100,000 was collected in Year 2. Cude’s employees earned $300,000 in Year 1 wages that were not paid until the first week of Year 2. Based only on this information, how much net income does Cude report for Year 2?
Expert Solution
Step 1: Understanding
Accrual method of accounting is, in which the expenses and incomes are recorded on the basis of as and when they are incurred, not on the basis when cash is paid or received. This provides a better picture of financial statements.
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