Gerald Bone, M.D., keeps his accounting records on the cash basis. During 2020, Dr. Bone collected $150,000 from his patients. At December 31, 2019, Dr. Bone had accounts receivable of $45,000. At December 31, 2020, Dr. Bone had accounts receivable of $35,000 and unearned revenue of $5,000. On the accrual basis, how much was Dr. Bone's patient service revenue for 2020?
A) $145,000
B) $140,000
C) $135,000
D) $105,000

Question

Quizplus · Accepted Answer

On the accrual basis, we need to account for the revenue earned during the period, regardless of whether the cash has been received or not. To determine the revenue earned during the period, we need to adjust for the change in accounts receivable and unearned revenue.

Starting with the cash collected of $150,000, we subtract the decrease in accounts receivable from $45,000 to $35,000, which represents $10,000 of services that were performed but not yet collected in cash. This gives us an adjusted cash basis revenue of $140,000.

Next, we need to add the decrease in unearned revenue from $5,000 to $0, which represents $5,000 of services that were previously collected in cash but not yet performed.

Therefore, the total patient service revenue on the accrual basis is $140,000 + $5,000 = $145,000.