Question

Sussman Co. prepared cash-basis financial statements for the month ended January 31. A summary of Sussman's January activities follows: Credit sales of $5,600. Collections of $1,900 relating to January credit sales. Accrued salaries of $1,200. By what amount will Sussman's cash-basis income for the month ended January 31 increase as a result of restating these activities to the accrual basis of accounting?

Answer 1

Answer:

An increase of $2,500

Explanation:

During cash-basis accounting method, all income and expenses that results to ACTUAL CASH INFLOW and OUTFLOW will be recorded. Thus, those income and expenses that applies for the period will not be recorded yet as long as there is no actual cash outflow. And all income made on account for the period will not be recognized unless there is an actual collection. Based on the stated facts, Sussman Co.,recorded $1,900 sales instead of the actual sales of $5,600 using accrual basis and has never been recorded the expenses incurred in the accrued salaries.

So, $5,600 less $1,900 cash collection which already have recorded on cash basis method, there will be an additional sales to be recorded at $3,700 less the salaries expense already incurred but not yet paid of $1,200. There will be an additional income of $2,500 after restatement.