@GiniC – I know what you're saying, one of the things I've started to do is to read the last sentence of the problem (the actual question!) first and to then re-read the entire question. Otherwise I find that by the time I get to the end of some of these wordy questions – I'm not really sure what I've read…
1/1 is the start of the period in this question while 12/31 is the end (based on your last post did you mistake 1/1 as being 1/1 of PERIOD 2?).
For these particular cash basis questions you just need to remember that 1) The timing of cash flows causes a difference between the cash and accrual basis of accounting 2) That under the cash basis when you receive cash you recognize income and when you pay cash you recognize an expense 3) Under the accrual method the collection of cash does not determine when revenues and expenses are recognized.
The other way to remember this if you're ever confused is to just remember the simple J/E below, and apply the concept in it to all cash basis questions:
DR: Expense – $100,000
CR: Account Payable – $100,000
In this J/E you recognized an expense on the accrual basis of accounting but since there was no cash inflow / outflow you would not recognize anything on the cash basis of accounting.
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My train of thought was essentially:
1. What is the question asking?
2. Answer: To determine accrual basis net income when given cash basis income.
3. What would cause the two basis to be different?
4. Answer: Timing differences.
5. What causes timing differences?
5. Timing of cash flows — This is when I thought back to the above J/E and determined that in order to answer the problem I'd have to evaluate why each account changed and whether that change would affect both the cash and accrual basis or just one of them.
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Sorry, probably not that much help but good luck 😛
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