Chapter 3, Problem 3.2E

Reporting Cash Basis versus Accrual Basis Income

Payson Sports, Inc., sells sports equipment to customers. Its fiscal year ends on December 31. The following transactions occurred in the current year:

1. a. Purchased $250,000 of new sports equipment inventory: paid $90,000 in cash and owed the rest on account.
2. b. Paid employees $180,300 in wages for work during the year, an additional $3,700 for the current year’s wages will be paid in January of the next year.
3. c. Sold sports equipment to customers for $750,000; received $500,000 in cash and owed the rest on account. The cost of the equipment was $485,000.
4. d. Paid $17,200 cash for utilities tor the year.
5. e. Received $70,000 from customers as deposits on orders of new winter sports equipment to be sold to the customers in January of the next year.
6. f. Received a $1,930 utilities bill for December of the current year that will be paid in January of the next year.

Required:

1. Complete the following statements:

Cash Basis Income Statement	Accrual Basis Income Statement
Revenues	Revenues
Cash sales	Sales to customers
Customer deposits
Expenses	Expenses
Inventory purchases	Cost of sales
Wages paid	Wages expense
Utilities paid	Utilities expense
Net income	Net income

2. Which basis of accounting (cash or accrual) provides more useful information to investors, creditors, and other users? Why ?