Molly's Auto Detailers maintains its records on the cash basis.During 2016,Molly's collected $72,000 from customers and paid $21,000 in expenses.Depreciation expense of $5,000 would have been recorded on the accrual basis.Over the course of the year,accounts receivable increased $4,000,prepaid expenses decreased $2,000,and accrued liabilities decreased $1,000.Molly's accrual basis net income was:

Question

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To convert from cash basis to accrual basis, adjust for changes in accounts receivable, prepaid expenses, and accrued liabilities, and include depreciation. Start with cash collected ($72,000), add increase in accounts receivable ($4,000), add decrease in prepaid expenses ($2,000), subtract decrease in accrued liabilities ($1,000), and subtract cash expenses ($21,000) and depreciation ($5,000). This results in an accrual basis net income of $49,000.

Molly's Auto Detailers Maintains Its Records on the Cash Basis