Yankton Company had sales of 240000 during 20X0 all on accou

Yankton Company had sales of $240,000 during 20X0, all on account. Accounts receivable for the year grew from $50,000 on January 1 to $110,000 on December 31. Expenses for the year were $170,000, all paid in cash. . Compute Yankton\'s net income on the cash basis of accounting. 2. Compute Yankton\'s net income on the accrual basis of accounting. 3. Which basis gives a better measure of Yankton\'s performance for 20X0? Why?

Solution

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In accrual basis of accounting sale or transaction is regarded when goods changes hands, while in cash basis transaction is recoded when cash changed hands.

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1. In cash basis of accounting the net income will be

Net income = cash receipts - cash expenses = (240000-60000) - 170000

                                                                               = $10,000

2. In accrual basis of accounting the net income will be

Accrual Accounting: Net income = 240000 -170000

                                                           = $70,000

3. Accrual basis provides improved degree of performance because it reflects real sales whether it is     received or not yet, but still measured for calculation of net income.

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