[Anonymous]

A company records items on the cash basis throughout the year and converts to an accrual basis for year-end reporting. Its cash-basis net income for the year is $70,000. The company has gathered the following comparative Balance Sheet information:

Beginning of year End of year

Accounts payable $ 3,000 $ 1,000

Unearned revenue 300 500

Wages payable 300 400

Prepaid rent 1,200 1,500

Accounts receivable 1,400 600

What amount should the company report as its accrual-based net income for the current year?

A. $68,800

B. $70,200

C. $71,200

The general rule to convert from cash to accrual is to add the beginning liability balances and subtract the ending liability balances; also, subtract beginning asset balances and add ending asset balances.

D. $73,200

---

Anyone know how you actually get to 71,200? According to the explanation, do you add 2000 A/P difference, 200 Unearned Revenue difference, 300 Prepaid rent difference, and subtract 100 Wages payable difference and 800 A/R Difference?

[MikeHoncho]

70,000

+2,000

-200

-100

+300

-800

---

71,200

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[MikeHoncho]

70,000

+2,000

-200

-100

+300

-800

---

71,200

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[MikeHoncho]

Add: Decreases in liabilities and increases in assets

Subtract: Increases in liabilities and decreases in assets

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[MikeHoncho]

Add: Decreases in liabilities and increases in assets

Subtract: Increases in liabilities and decreases in assets

Done: 5/22/14

"Always do sober what you said you'd do drunk. That will teach you to keep your mouth shut."
- Ernest Hemingway

[Anonymous]

Much thanks man.

[Anonymous]

Much thanks man.

[RandomAlt]

I find the easiest way to do cash to accrual conversions is with a “summary journal entry,” as I call it. I found the method posted by someone else on this forum, and I have always gotten the correct answer using this method. It is just the simplest way to do it for me.

You basically do a JE the summarizes the changes in each account. So, using the problem you posted:

We know the company's net income with regards to cash is $70K. That means that cash, as asset account, went up by $70. Assets increase with a debit. So we debit cash for 70K. We want to find accrual NI, which is revenue, and that will be our plug at the end.

A/P decreased by $2k. Liabilities decrease with a debit, so we debit A/P for $2K

Unearned revenue increased by $200. Liabilities increase with a credit, so we credit Unearned revenue for $200

Wages payable increased by $100. Liabilities increase with a credit, so we credit wages payable for $100

Prepaid rent increased by $300. Assets increase with a debit, so we credit prepaid rent for $300

A/R decreased by $800. Assets decrease with a credit, so we credit A/R for $800.

Now plug these numbers into the JE:

DR Cash 70,000

DR A/P 2,000

DR Prepaid Rent 300

CR A/R 800

CR Unearned Revenue 200

CR Wages Payable 100

CR Revenue Plug

The plug # for revenue is $41,200

Edited for formatting

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[RandomAlt]

I find the easiest way to do cash to accrual conversions is with a “summary journal entry,” as I call it. I found the method posted by someone else on this forum, and I have always gotten the correct answer using this method. It is just the simplest way to do it for me.

You basically do a JE the summarizes the changes in each account. So, using the problem you posted:

We know the company's net income with regards to cash is $70K. That means that cash, as asset account, went up by $70. Assets increase with a debit. So we debit cash for 70K. We want to find accrual NI, which is revenue, and that will be our plug at the end.

A/P decreased by $2k. Liabilities decrease with a debit, so we debit A/P for $2K

Unearned revenue increased by $200. Liabilities increase with a credit, so we credit Unearned revenue for $200

Wages payable increased by $100. Liabilities increase with a credit, so we credit wages payable for $100

Prepaid rent increased by $300. Assets increase with a debit, so we credit prepaid rent for $300

A/R decreased by $800. Assets decrease with a credit, so we credit A/R for $800.

Now plug these numbers into the JE:

DR Cash 70,000

DR A/P 2,000

DR Prepaid Rent 300

CR A/R 800

CR Unearned Revenue 200

CR Wages Payable 100

CR Revenue Plug

The plug # for revenue is $41,200

Edited for formatting

FAR - [10/07/2013 --> 66] [07/07/2014 --> 86]
BEC - [08/31/2014 --> 86]
AUD - [11/24/2014 --> 88]
REG - [02/14/2015 --> 92]

[Ramana]

What's plugging for revenue?
I tried to work the problem this way but can't understand how the final answer it arrived at

[Author]

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