In its first year of operations, Brisson Company earned $26,000 in services revenue, $4,000 of which was on account and still outstanding at year-end. The remaining Determine cash basis and

$22,000 was received in cash from customers. accrual basis earnings.

The company incurred operating expenses of $15,000. Of these expenses $13,500 were (SO 2)

paid in cash; $1,500 was still owed on account at year-end. In addition, Brisson prepaid

$2,500 for insurance coverage that would not be used until the second year of operations.

Instructions

(a) Calculate the first year’s net earnings under the cash basis of accounting, and calculate the first year’s net earnings under the accrual basis of accounting.

(b) Which basis of accounting (cash or accrual) provides more useful information for decision makers? = i