La More Company had the following transactions during 2013:
-Sales of $4,500 on account
-Collected $2,000 for services to be performed in 2014
-Paid $1,875 cash in salaries for 2013
-Purchased airline tickets for $250 in December for a trip to take place in 2014
What is La More's 2013 net income using accrual accounting?
A) $2,875
B) $4,875
C) $4,625
D) $2,625

Question

La More Company had the following transactions during 2013: 
-Sales of $4,500 on account
-Collected $2,000 for services to be performed in 2014
-Paid $1,875 cash in salaries for 2013
-Purchased airline tickets for $250 in December for a trip to take place in 2014
What is La More's 2013 net income using accrual accounting?
A) $2,875
B) $4,875
C) $4,625
D) $2,625

Quizplus · Accepted Answer

Under accrual accounting, revenue is recognized when earned and expenses when incurred. Sales of $4,500 are recognized as revenue. The $2,000 collected for future services is not recognized as 2013 revenue. The $1,875 salary expense is recognized, and the $250 for airline tickets is not an expense for 2013. Thus, net income is $4,500 - $1,875 = $2,625.

La More Company Had the Following Transactions During 2013