1. Delta Services

Scenario: Modified Cash Basis for Service Revenue

Data: Delta Services provides IT consulting services and uses the modified cash basis of accounting. During the year, the following transactions occurred:

• Cash received from clients: $120,000
• Credit sales to clients: $80,000
• Cash paid for operating expenses: $50,000
• Accrued expenses: $10,000

Requirements:

1. Prepare Delta Services' income statement using the modified cash basis of accounting.
2. Calculate Delta Services' net cash flow from operating activities under the modified cash basis.
3. Discuss the treatment of accrued expenses in modified cash basis accounting.
4. Analyze how the modified cash basis affects Delta Services' revenue recognition compared to accrual basis accounting.
5. Evaluate the impact of credit sales and accrued expenses on Delta Services' cash flow and financial position.
6. Recommend strategies for Delta Services to improve cash flow management under the modified cash basis.