Question
In its first year of operations, Oriole Company recognized $32,400 in service revenue, $7,200 of which was on account and still outstanding at year-end. The
In its first year of operations, Oriole Company recognized $32,400 in service revenue, $7,200 of which was on account and still outstanding at year-end. The remaining $25,200 was received in cash from customers. The company incurred operating expenses of $16,500. Of these expenses, $12,670 were paid in cash; $3,830 was still owed on account at year-end. In addition, Oriole prepaid $3,160 for insurance coverage that would not be used until the second year of operations. (a) Calculate the first years net earnings under the cash basis of accounting, and the first years net earnings under the accrual basis of accounting.
Cash Basis | Accrual Basis | |||
Net Income | $ | $ |
(b) Which basis of accounting (cash or accrual) provides more useful information for decision-makers?
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