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27 December, 04:00

A company paid $900 to workers during May. Of this amount, $600 was for work performed in April, while the other $300 was for work performed during May. What would the impact of this transaction be during May on (1) the balance of cash, (2) cash-basis net income, and (3) accrual-basis net income?

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  1. 27 December, 04:11
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    1. Cash balance will decrease

    2. Cash-basis net income will decrease

    3. Accrual-basis net income will decrease

    Explanation:

    $900 was paid to the workers by the company in May for $600 work performed in April and $300 in May. If the company follows cash basis, then cash balance will reduce by $900. If the company follows accrual-basis, then cash balance will reduce by $300.

    Cash basis net income will decrease by $900 while accrual basis net income will reduce by $300 as $600 would have been accounted in April.
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