Accruix,Inc.uses accrual basis accounting.Its balance sheets reported Accounts Receivable of $10,000 at the end of its first year and $15,000 at the end of its second year.Its income statement reported Sales Revenue of $100,000 in its second year.What would Accruix's revenues have been if it had used cash basis accounting?
A) $100,000
B) $95,000
C) $105,000
D) $10,000

Question

Quizplus · Accepted Answer

If Accruix had used the cash basis accounting, it would only record sales revenue when the cash is received, regardless of when the sale was made. Therefore, the accounts receivable balance at the end of the first year ($10,000) would have already been realized as revenue. Thus, the revenues for the second year would be $5,000 less than reported in the income statement, which is $100,000 - $5,000 = $95,000.