La More Company had the following transactions during 2021.
-Sales of $9,000 on account
-Collected $4,000 for services to be performed in 2022
-Paid $2,650 cash in salaries
-Purchased airline tickets for $500 in December for a trip to take place in 2022
What is La More's 2021 net income using cash basis accounting?
A)$10,350
B)$1,350
C)$9,850
D)$850

Question

La More Company had the following transactions during 2021. 
-Sales of $9,000 on account
-Collected $4,000 for services to be performed in 2022
-Paid $2,650 cash in salaries
-Purchased airline tickets for $500 in December for a trip to take place in 2022
What is La More's 2021 net income using cash basis accounting?
A)$10,350
B)$1,350
C)$9,850
D)$850

Quizplus · Accepted Answer

Under cash basis accounting, revenue is recognized when cash is received, and expenses are recognized when cash is paid. La More Company collected $4,000 for future services and paid $2,650 in salaries and $500 for airline tickets. Therefore, the net income is $4,000 - $2,650 - $500 = $850.

La More Company Had the Following Transactions During 2021