Use the following information for questions 63-64.
Lamb Company had the following transactions during 2010.
$\bullet$Sales of $4,500 on account
$\bullet$Collected $2,000 for services to be performed in 2011
$\bullet$Paid $625 cash in salaries
$\bullet$Purchased airline tickets for $250 in December for a trip to take place in 2011

-What is Lamb's 2010 net income using accrual accounting?
A) $3,875
B) $5,875
C) $5,625
D) $3,625

Question

Use the following information for questions 63-64.
Lamb Company had the following transactions during 2010.
$\bullet$Sales of $4,500 on account
$\bullet$Collected $2,000 for services to be performed in 2011
$\bullet$Paid $625 cash in salaries
$\bullet$Purchased airline tickets for $250 in December for a trip to take place in 2011
 
-What is Lamb's 2010 net income using accrual accounting?
A) $3,875
B) $5,875
C) $5,625
D) $3,625

Quizplus · Accepted Answer

Under accrual accounting, revenue is recognized when earned and expenses when incurred. Sales of $4,500 are recognized as revenue. The $2,000 collected for future services is not recognized as 2010 revenue. The $625 salary is an expense. The airline ticket is not an expense for 2010. Net income = $4,500 - $625 = $3,875.

Use the Following Information for Questions 63-64 ∙\bullet∙ Sales of $4,500 on Account

Use the Following Information for Questions 63-64 $\bullet$ Sales of $4,500 on Account