During May,Many Happy Returns,Inc.earned $1,400,of which $1,000 was collected,and had expenses of $800,of which $700 was paid.Its net income equals:
A) $600 using accrual accounting versus $300 using cash basis.
B) $300 using accrual accounting versus $600 using cash basis.
C) $700 using accrual accounting versus $200 using cash basis.
D) $200 using accrual accounting versus $700 using bash basis.

Question

Quizplus · Accepted Answer

Under accrual accounting, net income is calculated as revenues earned minus expenses incurred, which is $1,400 - $800 = $600. Under cash basis accounting, net income is calculated as cash collected minus cash paid, which is $1,000 - $700 = $300.