Payson Sports Inc sells sports equipment to customers Its fi

Payson Sports, Inc., sells sports equipment to customers. Its fiscal year ends on December 31. The following transactions occurred in the current year a. Purchased $250,000 of new sports equipment inventory; paid $90,000 in cash and owed the rest on account. b. Paid employees $180,300 in wages for work during the year; an additional $3,700 for the current years wages will be paid in January of the next year c. Sold sports equipment to customers for $750,000; received $500,000 in cash and owed the rest on account. The cost of the equipment was $485,000 d. Paid $17,200 cash for utilities for the year. e. Received $70,000 from customers as deposits on orders of new winter sports equipment to be sold to the customers in January of the next year f. Received a $1,930 utilities bill for December of the current year that will be paid in January of the next year Required 1. Complete the following statements Cash Basis Income Statement Accrual Basis Income Statement Revenues Revenues Sales to customers Cash sales Customer deposits Expenses Inventory purchases Wages paid Utilities paid Cost of sales Wages expense Utilities expense Net Income Net income 2. Which basis of accounting (cash or accrual) provides more useful information to investors, creditors, and other users? O Cash basis Accrual basis

Solution

1. Cash Basis Income Statement

Accrual Basis Income Statement

Revenue

Revenue

Cash Sales

$        500,000

Sales to Customers

$        750,000

Customer Deposits

$          70,000

Expenses

Expenses

Inventory Purchases

$          90,000

Cost of Sales

$        485,000

Wages Paid

$        180,300

Wages Expense

$        184,000

Utilities Paid

$          17,200

Utilities Expense

$          19,130

Net Income

$        282,500

Net Income

$          61,870

2. From the point of view of investors, creditors and other users the accrual basis system is very useful and more informative. The accrual system provides results which are actually attributable for the year and this helps the user to analyze the situation and financial position of company more effectively

1. Cash Basis Income Statement	Accrual Basis Income Statement
Revenue			Revenue
Cash Sales	$        500,000		Sales to Customers	$        750,000
Customer Deposits	$          70,000
Expenses			Expenses
Inventory Purchases	$          90,000		Cost of Sales	$        485,000
Wages Paid	$        180,300		Wages Expense	$        184,000
Utilities Paid	$          17,200		Utilities Expense	$          19,130
Net Income	$        282,500		Net Income	$          61,870