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 cash basis accounting?
A) $5,875
B) $1,375
C) $5,625
D) $1,125

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 cash basis accounting?
A) $5,875
B) $1,375
C) $5,625
D) $1,125

Quizplus · Accepted Answer

Under cash basis accounting, revenue is recognized when cash is received, and expenses are recognized when cash is paid. Lamb Company collected $2,000 for future services and paid $625 in salaries, resulting in a net income of $1,375 ($2,000 - $625). The airline ticket purchase does not affect 2010 net income as the trip is in 2011.

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