In its first year of operations, Roma Company reports the following. Earned revenues of $53,000 ($45,000 cash received from customers). Incurred expenses of $29,500 ($23,050 cash paid toward them). Prepaid $8,750 cash for costs that will not be expensed until next year.

Complete question :

In its first year of operations, Roma Company reports the following. Earned revenues of $53,000 ($45,000 cash received from customers). Incurred expenses of $29,500 ($23,050 cash paid toward them). Prepaid $8,750 cash for costs that will not be expensed until next year. calculate the first year's net income under both the cash basis and the accrual basis of accounting.

Kindly check explanation

Step-by-step explanation:

Given the following :

Earned revenue = $53,000

Cash received from customers = $45000

Incurred expenses = $29,500

Cash paid towards incurred expenses = $23,050

Cash which will not be expensed till next year = $8,750

Cash Accounting:

Cash received $45,000

Expenses ($23,050 + $8750) = $31,800

Net Income $(45,000 - 31,800) = $13,200

Accrual Accounting :

Revenue earned $53,000

Expenses incurred $29,500

Net income $(53,000 - 29,500) = $23500

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