How would you prepare an income statement according to the accrual accounting model?

Question

Amounts billed to customers for services rendered...... 170,000

Cash collected from customers.................................. 160,000

Cash disbursements..............................

Salaries paid to employees for services rendered

during the year....................................... 90,000

Utilities.................................. 30,000

Purchase of insurance policy................................ 60,000

*In addition you learn that the company incurred utilkity costs of $35,000.

Answer 1

For revenue, you should take $170k and not $160k. The services rendered totalled $170k and that's the amt you use for the income statement. For utilities, you've paid $30,000, but incurred $35,000, so you should take $35k as the expense. And if the insurance policy covers a 3-yr period, you should take 1/3 of $60,000 for insurance expense.

Income statement

Revenues

Services rendered $170,000

less:

Operating expenses

Salaries $90,000

Utilities $35,000

insurance $20,000

Net income $25,000