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 $1,325 cash in salaries
-Purchased airline tickets for $250 in December for a trip to take place in 2014
What is La More's 2013 net income using cash basis accounting?
A) $5,175
B) $675
C) $4,925
D) $425

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 $1,325 cash in salaries
-Purchased airline tickets for $250 in December for a trip to take place in 2014
What is La More's 2013 net income using cash basis accounting?
A) $5,175
B) $675
C) $4,925
D) $425

Quizplus · Accepted Answer

Under cash basis accounting, revenue is recognized when cash is received, and expenses are recognized when cash is paid. La More collected $2,000 in cash for future services and paid $1,325 in salaries and $250 for airline tickets. Therefore, the net income is $2,000 - $1,325 - $250 = $425.

La More Company Had the Following Transactions During 2013