Crue Company had the following transactions during 2015:
-Sales of $4,500 on account
-Collected $2,500 for services to be performed in 2016
-Paid $1,625 cash in salaries
-Purchased airline tickets for $250 in December for a trip to take place in 2016
What is Crue's 2015 net income using cash basis accounting?
A)$625.
B)$875.
C)$5,125.
D)$5,375.

Question

Crue Company had the following transactions during 2015: 
-Sales of $4,500 on account
-Collected $2,500 for services to be performed in 2016
-Paid $1,625 cash in salaries
-Purchased airline tickets for $250 in December for a trip to take place in 2016
What is Crue's 2015 net income using cash basis accounting?
A)$625.
B)$875.
C)$5,125.
D)$5,375.

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 airline ticket purchase does not affect 2015 net income as the trip is in 2016.

Crue Company Had the Following Transactions During 2015