Byfort Company reports the following in its financial statements:
$$\begin{array} { | l | c | c | }
\hline & \underline { 2005 } & \underline { 2006 } \
\hline \text { Accounts receivable, net } & \$ 34,289 & \$ 29,678 \
\hline \text { Net sales* } & \$ 360,007 & \$ 450,000 \
\hline
\end{array}$$
*All sales are on credit.
-How much sales would have been reported by the company in 2006 if Byfort used cash accounting and not accrual accounting?
A)$445,389
B)$454,611
C)$484,289
D)$488,900

Question

Byfort Company reports the following in its financial statements:
$$\begin{array} { | l | c | c | } 
\hline & \underline { 2005 } & \underline { 2006 } \
\hline \text { Accounts receivable, net } & \$ 34,289 & \$ 29,678 \
\hline \text { Net sales* } & \$ 360,007 & \$ 450,000 \
\hline
\end{array}$$
*All sales are on credit. 
-How much sales would have been reported by the company in 2006 if Byfort used cash accounting and not accrual accounting?
A)$445,389
B)$454,611
C)$484,289
D)$488,900

Quizplus · Accepted Answer

Under cash accounting, sales are recognized when cash is received. To find the sales reported in 2006 under cash accounting, we start with the accrual basis sales for 2006 ($450,000), add the decrease in accounts receivable from 2005 to 2006 ($34,289 - $29,678 = $4,611), because a decrease in accounts receivable means more cash was collected than sales recognized on an accrual basis. Therefore, cash basis sales for 2006 would be $450,000 + $4,611 = $454,611.

Byfort Company Reports the Following in Its Financial Statements *All Sales Are on Credit