The records of Summers Building Company reveal the following information for 2011.
a. Cash receipts during 2011 (including $50,000 paid by stockholders in exchange for common stock) were $273,500.
b. Cash payments during 2011 (including $8,000 of dividends paid to stockholders) were $164,850.
c. Total selling price of services billed to customers during 2011 was $201,700.
d. Salaries earned by employees during 2011 were $114,250.
e. Cost of supplies used during 2011 in operation of the business was $47,325.
Required:
1. Calculate Summers Building’s net income for 2011 on an accrual basis.
2. Calculate Summers Building’s net income for 2011 on a cash-basis.
3. Explain how the cash-basis of accounting allows for the manipulation of income.