Crue Company had the following transactions during 2018:
.Sales of $4,500 on account
.Collected $2,500 for services to be performed in 2019
.Paid $1,625 cash in salaries
.Purchased airline tickets for $250 in December for a trip to take place in 2019
What is Crue's 2018 net income using cash-basis accounting after cash?
A) $625.
B) $875.
C) $5,125.
D) $5,375.

Question

Quizplus · Accepted Answer

Under cash-basis accounting, revenue is recognized when cash is received, and expenses are recognized when cash is paid. Crue Company collected $2,500 for future services and paid $1,625 in salaries, resulting in a net income of $875 ($2,500 - $1,625). The purchase of airline tickets is not an expense for 2018 as the trip is in 2019.

Crue Company Had the Following Transactions During 2018