Little Company uses the cash basis of accounting. Little Company made $28,000 in payments to its suppliers during the year. Little's beginning inventory was $2,000, and its ending inventory was $1,000. In addition, Little had a beginning accounts payable of $7,000 and an ending accounts payable balance of $4,000. What is Little's cost of goods sold under the accrual basis of accounting?
A) $26,000
B) $30,000
C) $32,000
D) $37,000

Question

Quizplus · Accepted Answer

Cost of goods sold under the accrual basis of accounting is calculated as follows:Beginning inventory + Purchases - Ending inventory = Cost of goods sold$2,000 + $28,000 - $1,000 = $29,000However, since Little Company uses the cash basis of accounting, we need to adjust for the change in accounts payable.Cost of goods sold under the accrual basis of accounting = Cost of goods sold under the cash basis of accounting + Increase in accounts payable$29,000 + ($4,000 - $7,000) = $26,000

Little Company Uses the Cash Basis of Accounting