Guardian Corp. sells $6,250 of goods on account in the current year and collects $3,250 of this. It incurs $4,200 in expenses on account during the current year and pays $2,600 of them. Guardian would report what amount of net income under the cash and accrual bases of accounting, respectively?

Question

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Under the cash basis, net income is calculated as cash received ($3,250) minus cash paid for expenses ($2,600), resulting in $650. Under the accrual basis, net income is calculated as revenue earned ($6,250) minus expenses incurred ($4,200), resulting in $2,050.