The following information was taken from the books of Chris Dawson at December 31, 2018.
- 2018 — sales in cash $30000; credit sales $24000. 2. 2018 — Cash collection: $8000 from sales made in 2017, $16000 on 2018 credit sales and $6000 on sales for 2019. 3. 2018 – Expenses of $25000 relating to 2018 paid in cash; expenses of $9000 is still owing for 2018; $11000 was paid towards 2019 expenses. Chris Dawson is not sure what amount he should record in his financial statements as sales revenue and as
expenses.
Explain to Chris the difference between the accruals basis of accounting and the cash basis of accounting. For the year 2018, what amounts should Chris recognize as sales revenue and expense under the accruals basis of accounting; and what amounts would he recognize under the cash basis of accounting? Which method is acceptable for taxation and reporting purposes?
Sample Solution
