In the course of your examination of the books and records of Hickory Company, you find the following data:
|
Salaries earned by employees in 2003 |
$53,000 |
|
Salaries paid in 2003 |
55,000 |
|
Total sales revenue in 2003 |
838,000 |
|
Cash collected from sales in 2003 |
900,000 |
|
Utilities expense incurred in 2003 |
5,000 |
|
Utility bills paid in 2003 |
4,800 |
|
Cost of goods sold in 2003 |
532,000 |
|
Cash paid on purchases in 2003 . |
411,000 |
|
Inventory at December 31, 2003. . |
320,000 |
|
Tax assessment for 2003 |
5,000 |
|
Taxes paid in 2003. |
4,900 |
|
Rent expense for 2003 |
30,000 |
|
Rent paid in 2003. |
25,000 |
Required
1. Compute Hickory s net income for 2003 using cash basis accounting.
2. Compute Hickory s net income for 2003 using accrual basis accounting.
3. Interpretive Question: Why is accrual basis accounting normally used? Can you see any opportunities for improperly reporting income under cash basis accounting? Explain.