During 2016,a company makes credit sales of $500 000,of which $375 000 is collected at year-end.It pays $200 000 in expenses and owes $25 000 for electricity used during 2016.What would the profit be if cash accounting rather than accrual accounting was used?

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Quizplus · Accepted Answer

If cash accounting is used instead of accrual accounting, then revenue is recognized only when cash is received, and expenses are recognized only when cash is paid. Therefore, in this case, the company's revenue would be $375 000 (amount collected in cash), and its expenses would be $225 000 ($200 000 paid for expenses and $25 000 owed for electricity, but not yet paid in cash). Therefore, the profit would be $150 000 ($375 000 - $225 000).

During 2016,a Company Makes Credit Sales of $500 000,of Which