From the records of Tom, a cash basis sole proprietor, the following information was available: What amount should Tom report as net earnings from self-employment?

Question

Quizplus · Accepted Answer

To calculate the net earnings from self-employment for a cash basis sole proprietor, we need to add up the total income and subtract the total expenses for the year.

Total Income = Gross receipts + Sales of inventory = $16,000 + $4,000 = $20,000
Total Expenses = Cost of goods sold + Other expenses = $8,000 + $900 = $8,900

Net Earnings from Self-Employment = Total Income - Total Expenses = $20,000 - $8,900 = $11,100

Therefore, the closest option is B ($11,300), which is just $200 more than the actual net earnings.

From the Records of Tom, a Cash Basis Sole Proprietor