Cash basis of accounting Cash basis of accounting refers to the recognition of financial transactions only when the cash is received or paid. Accrual basis of accounting: Accrual basis of accounting refers to recognizing the financial transactions during the period in which the event occurs, even if the cash is not exchanged. To determine: The Company’s net earnings on accrual basis for the year 2017.

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Chapter 4, Problem 4.4E

To determine

Cash basis of accounting

Cash basis of accounting refers to the recognition of financial transactions only when the cash is received or paid.

Accrual basis of accounting:

Accrual basis of accounting refers to recognizing the financial transactions during the period in which the event occurs, even if the cash is not exchanged.

To determine: The Company’s net earnings on accrual basis for the year 2017.

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Grass Reed Bayou is a bottling company in The Netherlands. The company uses a normal costing system in which factory overhead is applied on the basis of direct labor costs. Budgeted factory overhead for the year was $680,000, and management budgeted $320,000 of direct labor costs. During the year, the company incurred the following actual costs. Direct materials used $ 382,000Direct labor 313,000Factory overhead 650,700The January 1 balances of inventory accounts are shown below. Materials-all direct $ 64,000Work-in-process 41,400Finished goods 25,600The December 31 balances of these inventory accounts were ten percent lower than the balances at the beginning of the year. The cost of goods manufactured during the year is: