1. Accrual Basis Accounting

Data: Alpha Services provides consulting services and operates on an accrual basis. During the year, the following transactions occurred:

• Service revenue earned: $250,000
• Cash received from clients: $220,000
• Accrued service revenue at year-end: $30,000
• Operating expenses paid: $150,000
• Accrued expenses at year-end: $20,000

Requirements:

1. Prepare Alpha Services' income statement using the accrual basis of accounting.
2. Calculate Alpha Services' net profit for the year.
3. Discuss the difference between cash basis and accrual basis accounting for recognizing revenue and expenses.
4. Analyze how accrual basis accounting affects Alpha Services' financial statements compared to cash basis.
5. Evaluate the impact of accrued revenue and expenses on Alpha Services' profitability and cash flow.
6. Recommend strategies for Alpha Services to manage accruals effectively.