Wang Company had the following transactions during 2021:
-Sales of $10,800 on account
-Collected $4,800 for services to be performed in 2022
-Paid $2,600 cash in salaries
-Purchased airline tickets for $600 in December for a trip to take place in 2022
What is Wang's 2021 net income using cash basis accounting?
A)$1,600
B)$2,800
C)$13,000
D)$2,200

Question

Wang Company had the following transactions during 2021:
 -Sales of $10,800 on account
-Collected $4,800 for services to be performed in 2022
-Paid $2,600 cash in salaries
-Purchased airline tickets for $600 in December for a trip to take place in 2022
What is Wang's 2021 net income using cash basis accounting?
A)$1,600
B)$2,800
C)$13,000
D)$2,200

Quizplus · Accepted Answer

Cash basis accounting records revenue when cash is received and expenses when cash is paid. In this case, Wang Company received $10,800 for services performed in 2021 and paid $2,600 in salaries. The company also received $4,800 for services to be performed in 2022, but this amount is not included in the 2021 net income under cash basis accounting. The airline tickets purchased for $600 in December for a trip to take place in 2022 are also not included in the 2021 net income under cash basis accounting. Therefore, Wang's 2021 net income using cash basis accounting is $10,800 - $2,600 = $8,200.

Wang Company Had the Following Transactions During 2021