[yhe1223]

Savor Co. had $100,000 in cash-basis pretax income for the current year. At December 31 of the current year,

accounts receivable had increased by $10,000 and accounts payable had decreased by $6,000 from their

previous year December 31 balances. Compared to the accrual basis method of accounting, Savor’s cash pretax

income is?

Higher by $4,000

Lower by $4,000

Higher by $16,000

Lower by $16,000

The answer is Lower by 16000.

Accrual accounting recognizes and reports the effects of transactions and other events on the assets and liabilities

of a business enterprise in the time periods to which they relate rather than only when cash is received or paid.

Compared to the accrual basis of accounting, the cash pretax income is lower by $16,000. Accounts receivable

increasing by $10,000 reflects that an additional $10,000 of cash for sales has not yet been received. Accounts

payable decreasing by $6,000 indicates an additional $6,000 in cash has been paid out.

I am totally confused now, if AR increased by 10000, that means debit cash credit AR 10000, then accrual basis will be $10000 more than cash basis.

if AP decreased by $6000, that means debit AP , credit Cash $6000, right? I think under accrual basis and cash basis, they both need to deduct the $6000 payment from their cash balance right?

Then i think the cash basis should be $10000 lower than the accrual basis, can anyone help me to get to the right direction to solve the problem?

Thank you!

Step by step
BEC 75 2013/11
FAR 76 2014/10
AUD 87 2015/1
REG 83 2015/3

[yhe1223]

sorry I put wrong journal entry….

Step by step
BEC 75 2013/11
FAR 76 2014/10
AUD 87 2015/1
REG 83 2015/3

[yhe1223]

I have figured out, please just ignore this posting, thank you

Step by step
BEC 75 2013/11
FAR 76 2014/10
AUD 87 2015/1
REG 83 2015/3

[Author]

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