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In its first year of operations, Roma Company reports the following. Earned revenues of $47,000 ($39,000 cash received from customers). Incurred expenses of $26,500 ($20,950 cash paid toward them). Prepaid $7,250 cash for costs that will not be expensed until next year. Compute the company’s first-year net income under both the cash basis and the accrual basis of accounting.

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Answer:

Net Income

Cash basis $10,800

Accrual basis $20,500

Explanation:

Computation of Roma company’s first-year net income under both the cash basis and the accrual basis of accounting will be:

Cash basis Accrual basis

Revenue $39,000 $47,000

Expenses $28,200 $26,500

Net Income $10,800 $20,500

Cash paid $20,950

Add Prepaid cash $7,250

=$28,200

Therefore first-year net income cash basis will e $10,800 and accrual basis will be $20,500

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