A company paid $900 to workers during May.Of this amount,$600 was for work performed in April,while the other $300 was for work performed during May.What would the impact of this transaction be during May on (1)the balance of cash, (2)cash-basis net income,and (3)accrual-basis net income?
A)(1)No effect, (2)No effect, (3)Decrease.
B)(1)Decrease, (2)Decrease, (3)No effect.
C)(1)Decrease, (2)Decrease, (3)Decrease.

Question

Quizplus · Accepted Answer

(1) The balance of cash would decrease by $300 since only $300 was paid in May.
(2) Cash-basis net income would decrease by $300 since that is the amount paid in May and is recognized as an expense on the cash basis.
(3) Accrual-basis net income would decrease by $600 since that is the total amount for work done in April and May, and only $300 was recognized as an expense in May.

A Company Paid $900 to Workers During May