During the first year of operations a company sold 112000 of

During the first year of operations, a company sold $112,000 of goods to customers and recelved $96,000 In cash from customers. The remalnder is owed to the company at the end of the year. The company incurred $71,200 in expenses for the year and paid $66,200 In cash for these expenses. The remainder is owed by the company at the end of the year. Based on this Information, what is the amount of net Income for the year? O $24800 O $29,800 O $40,800 O $45,800

Solution

Answer

Under Accrual method of accounting, transactions are recognised in the period in which they occur whether the cash has been paid/received fully or partly.

Hence, the income would be total sales amount of $112000. Expenses would be $71200.
As a result, the Net Income for the first year of Operation would be 112000 – 71200 = $40,800

Hence, OPTION – C $40,800 is correct.

Since Assets = liabilities + Common Stock + Retained earnings at End of Year,

Asset 6900 = Liabilities 3290 + Common Stock 3180 + Retained earnings
6900 = 3290 + 3180 + RE at year end
6900 – 3290 – 3180 = Retained earning, End of Year
Hence, Retained earning at the end of year = 6900-3290-3180= $430

Also,

Retained earnings (Beg) + Net Income = retained earnins (End)
($80) given + Net Income = $430 (calculated above)

-80 + Net Income = 430
Net Income = 430 + 80 =$510

Also, Total revenues – Total expenses = Net Income
Hence, 5600 – Total expenses = 510
Total expenses = 5600 – 510 = $ 5090

Missing Figures are---

Net Income (loss) = $510
Retained earnings, End of Year = $430
Total Expenses = $5090

YES, as the retained earnings have turned POSITIVE, also, income exceeded expenses.