On December 31, 2003, Matt Morgan completed the first year of operations for his new computer retail store. The following data were obtained from the company s accounting records:
|
Sales to customers |
197,000 |
|
Collections from customers . |
145,000 |
|
Interest earned and received on savings accounts |
2,500 |
|
Cost of goods sold |
98,500 |
|
Amounts paid to suppliers for inventory |
103,000 |
|
Wages owed to employees at year end |
3,500 |
|
Wages paid to employees .. |
40,000 |
|
Utility bill owed: to be paid next month. |
1,100 |
|
Interest due at 12/31 on loan to be paid in March of next year.. |
1,200 |
|
Amount paid for one and one half years rent, beginning Jan. 1, 2003. |
17,500 |
|
Income taxes owed at year end |
4,000 |
1. How much net income (loss) should Matt report for the year ended December 31, 2003, according to (a) cash basis accounting and (b) accrual basis accounting?
2. Which basis of accounting provides the better measure of operating results for Matt?