1. Cash Basis Accounting

Data: Alpha Consulting Services provides consulting services and operates on a cash basis. During the year, the following transactions occurred:

• Cash received from clients: $150,000
• Cash paid for operating expenses: $80,000
• Cash paid for rent: $20,000
• Cash paid for salaries: $50,000

Requirements:

1. Prepare Alpha Consulting Services' income statement using the cash basis of accounting.
2. Calculate Alpha Consulting Services' net cash flow from operating activities.
3. Discuss the advantages and disadvantages of using cash basis accounting for service-based businesses.
4. Analyze how cash basis accounting affects the timing of recognizing revenue and expenses for Alpha Consulting Services.
5. Evaluate the impact of non-cash transactions, such as depreciation, on Alpha Consulting Services' financial statements.
6. Recommend whether Alpha Consulting Services should continue using cash basis accounting or switch to accrual basis accounting.