Cash-Basis and Accrual-Basis Accounting}

The records of Summers Building Company reveal the following information for 2018

a. Cash receipts during 2018 (including \(\$ 50,000\) paid by shareholders in exchange for common shares) were \(\$ 273,500\).

b. Cash payments during 2018 (including \(\$ 8,000\) of dividends declared and paid to shareholders) were \(\$ 164,850\).

c. Total selling price of services billed to customers during 2018 was \(\$ 201,700\).

d. Salaries earned by employees during 2018 were \(\$ 114,250\).

e. Cost of supplies used during 2018 in operation of the business was \(\$ 47,325\).

\section*{Required:}

1. Calculate Summers Building's net income for 2018 on an accrual basis.

2. Calculate Summers Building's net income for 2018 on a cash basis.

3. CONCEPTUAL CONNECTION Explain how the cash basis of accounting allows for the manipulation of income.

\section*{Exercise