In its first year of business,Declan Industries earned $175,000 of revenues of which $140,000 was collected.It also incurred $157,500 in expenses for which $140,000 was paid.Which of the following statements are correct?
A)Declan should use cash basis accounting for external reporting purposes as required under GAAP and IFRS.
B)Declan should report net income of $17,500 for external reporting purposes.
C)Declan should report $0 net income for external reporting purposes.
D)Declan should report net income of $35,000 for external reporting purposes.

Question

Quizplus · Accepted Answer

Using the accrual basis,which is required by GAAP and IFRS for external reporting purposes:
Net income = Revenues − Expenses
= $175,000 − $157,500 = $17,500

In Its First Year of Business,Declan Industries Earned $175,000 of Revenues