CASH-BASIS AND ACCRUAL-BASIS INCOME George Hathaway, an electrician, entered into an agreement with a real estate management company to perform all maintenance of basic electrical systems and air-conditioning equipment in the apartment buildings under the company’s management. The agreement, which is subject to annual renewal, provides for the payment of a fixed fee of

$6,000 on January 1 of each year plus amounts for parts and materials billed separately at the end of each month. Amounts billed at the end of one month are collected in the next month. During the first three months of 2009, George makes the following additional billings and cash collections:

Billings for Parts and Materials Cash Collected Cash Paid for Parts and Materials Cost of Parts and Materials Used January $420 $6,110* $310 $320 February 0 420 290 250 March 330 0 300 300

*Includes $110 for parts and materials billed in December 2008.

Required:

. Calculate the amount of cash-basis income reported for each of the first three months.

. Calculate the amount of accrual-basis income reported for each of the first three months.

. Why do decision-makers prefer the accrual basis of accounting?