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Cathy opens a retail store. Her sales during the first year are $800,000, of which $80,000 has not been collected at year-end. Her purchases are
Cathy opens a retail store. Her sales during the first year are $800,000, of which $80,000 has not been collected at year-end. Her purchases are $400,000. She still owes $60,000 to her suppliers, and at year-end she has $70,000 of inventory on hand. She incurred operating expenses of $190,000. At year-end she has not paid $25,000 of the expenses.
a. | Compute her net income from the business assuming she elects the accrual method. |
b. | Compute her net income from the business assuming she elects the cash method. |
c. | Would paying the $25,000 she owes for operating expenses before year-end change her net income under accrual method of reporting? under the cash method? |
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