Calculate accrual profit and change in cash

‘I just don’t understand it!’ Barry had received his accountant’s calculation of his business profit, showing an accrual profit for his first year in business of $45 290. ‘If I made so much money, why don’t I have it in the bank? My bank account shows only $15 040 on hand!’

Barry operates Barry Supply, which provides stationery and office supplies to business customers. He has no store, just a small rented warehouse, and only one employee. Here are the data that Barry and his accountant used. Explain clearly to Barry:

1 How the accountant calculated the $45 290 profit.

2 Why there is only $15 040 cash on hand.

$

Collected from customers during the year 143 710 Still owing from customers at the end of the year (collected next year) 15 220 Paid for products to resell and for other expenses, including wages, during the year 128 670 Owing for products and other expenses at the end of the year (paid next year) 9 040 Cost of unsold products on hand at the end of the year (all sold next year) 26 070 Depreciation on equipment during the year 2 000