Crue Company had the following transactions during the calendar year: Sales of $4,800 on account...

Question:

Crue Company had the following transactions during the calendar year:

Sales of $4,800 on account

Collected $2,000 for services to be performed in the following year

Paid $1,625 cash in salaries

Purchased airline tickets for $250 in December for a trip to take place in the following year

What is Crue's current net income using accrual accounting?

a. $2,925

b. $3,175

c. $4,925

d. $5,175

Accrual Accounting:

In accrual accounting, revenue is recognized as and when the service and product are delivered and expenses are recognized as and when they are incurred, regardless of when the related cash flow takes place.

Answer and Explanation: 1

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The correct answer is b. $3,175.

Crue's current net income using accrual accounting is:

Sales revenue $4,800
Salaries (1,625)
Net income $3,175

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The Differences Between Accrual & Cash-Basis Accounting

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Chapter 4 / Lesson 3
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Learn about the difference between cash and accrual accounting. See accrual vs. cash basis accounting examples, and identify benefits of the two types of accounting.


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