You have recently been hired by Fox Company, a small accounting firm. you are in charge of dealing with one of their biggest comments. The owner is applying for a substantial loan to update the store. The bank requires accrual based financial statements, but the owner wants to keep his store on cash basis and does not see the purpose of an accrual based accounting system. using the information below:

1. determine the net income as of 2020 using accrual accounting method

2. and explain the effect on the balance sheet from the conversion from cash ro accrual basis accounting

given information:

a. cash basis net income = $32,000

b. A new insurance policy requires and annual payment of $15,000 for the upcoming year. Coverage began on September 1, 2021, at which time the first payment was made.

c. The owner allows his customers to pay by credit card. The end of the current year, various credit companies is owed him $5500. At the end of last year, customer credit card charges outstanding or $5000.

d. employees are paid once a month on the 10th of each month following the work. Cash disbursements to employees were $8200 and $7200 for January 10, 2022 and January 10, 2021 respectively.

e. utility bill was outstanding total of $1500 at the end of 2021 and $1200 the end of 2020.

f. A physical count of inventory is always taken at the end of the fiscal year. The merchandise on hand at the end of 2021 cost $35,000. At the end of 2020, merchandise in Tori on hand cost $32,000.

g. At the end of 2020 there were no bills outstanding to suppliers of merchandise. However, at the end of 2021 year old supplier $6000.