36 Given the data below for a firm in its first year of oper

36. Given the data below for a firm in its first year of operation, determine net income under the cash basis of accounting Revenue earned Accounts receivable Expenses incurred Accounts payable (related to expenses) Supplies purchased with cash $16,000 3,000 7,250 750 1,800 A) S6,500 B) S11,000 C) $4,700 D) S6,950

Solution

C) $ 4,700

Working:

	Revenue Earned in cash		13,000
	Total
	Expensed paid in cash		6,500
	Supplies paid in cash		1,800
	Total				8,300
	Net Income			4,700
Working:
a.	Revenue earned			16,000
	Accounts receivable		3,000
	Cash received from sales		13,000
b.
	Expense Incurred			7,250
	Accounts Payable			750
	Cash paid for expense		6,500