Answer:
a.
Net Income for 2022 = $33000
b.
Net Income for 2022 = $36000
Explanation:
a.
The cash basis accounting follows that all the transactions should be recorded in the period in which cash is either received or paid out as a result of that transaction rather than in the period to which they relate to.
Thus, the Net Income for 2022 under cash basis will be,
<u>Cash Receipts in 2022</u>
Collections from customer 105000
<u>Less: Cash Payments in 2020</u>
Expenses paid <u> (72000)</u>
Net Income 33000
b.
Under accrual basis, the transactions should be recorded in the period to which they relate to rather than in the period when cash is received or paid out.
Thus, net income for 2022 under accrual basis will be,
Revenue 2022 = 105000 - 25000 + 40000 = $120000
Expenses 2022 = 72000 - 30000 + 42000 = $84000
Net Income = 120000 - 84000 = $36000
