Use the information given below to answer the following questions:
During 2012, a company makes credit sales of $600 000, of which $350 000 is collected at year-end. It pays $220 000 in expenses and owes $20 000 for electricity used during 2012.
-Profit according to accrual accounting is:
A) $130 000
B) $380 000
C) $360 000
D) $710 000.

Question

Quizplus · Accepted Answer

Accrual accounting recognizes revenue and expenses when they are earned or incurred, regardless of when they are collected or paid. 
Therefore, the company's revenue for 2012 is $600,000, even though they only collected $350,000 at the end of the year. 
Expenses for 2012 are $220,000, and the company owes $20,000 for electricity, which is an expense incurred in 2012. 
Therefore, the company's profit according to accrual accounting is: 
$600,000 (revenue) - $220,000 (expenses) - $20,000 (electricity expense) = $360,000. 
Therefore, the best choice is C.

Use the Information Given Below to Answer the Following Questions