CASH-BASIS AND ACCRUAL-BASIS ACCOUNTING The records of Summers Building Company reveal the following information for 2009.

a. Cash receipts during 2009 (including $50,000 paid by stockholders in exchange for common stock) were $220,000.

b. Cash payments during 2009 (including $8,000 of dividends paid to stockholders)

were $132,000.

c. Total selling price of services billed to customers during 2009 was $183,000.

d. Salaries earned by employees during 2009 was $107,000.

e. Cost of supplies used during 2009 in operation of the business was $42,000.

Required:

. Calculate Summers Building Company’s net income for 2009 on an accrual basis.

. Calculate Summers Building Company’s net income for 2009 on a cash-basis.

. Explain how the cash-basis of accounting allows for the management of income.

Exercise