A company earned earned $39,000 in revenues and received $33,000 cash from these customers. The company incurred expenses of $22,500 but had not paid $2,250 of them at years end. Harden also prepaid $3750 cash for expenses that would be incurred the next year. Calculate the first year's net income under both the cash basis and the accrual basis of accounting.

To calculate the first year's net income under both the cash basis and accrual basis of accounting, we need to consider the revenues earned and the expenses incurred.

1. Cash Basis:

Under the cash basis of accounting, revenues are recognized when cash is received, and expenses are recognized when cash is paid.

Revenues earned and cash received: $33,000
Expenses incurred and cash paid: $22,500

Net Income (Cash Basis) = Revenues - Expenses
= $33,000 - $22,500
= $10,500

2. Accrual Basis:

Under the accrual basis of accounting, revenues are recognized when they are earned, regardless of when the cash is received, and expenses are recognized when they are incurred, regardless of when the cash is paid.

Revenues earned: $39,000
Expenses incurred: $22,500

However, we need to adjust for unpaid expenses and prepaid expenses.

Unpaid expenses: $2,250
Prepaid expenses: $3,750

Adjusted Expenses = Expenses incurred - Unpaid expenses + Prepaid expenses
= $22,500 - $2,250 + $3,750
= $24,000

Net Income (Accrual Basis) = Revenues - Adjusted Expenses
= $39,000 - $24,000
= $15,000

Therefore, the first year's net income is $10,500 under the cash basis of accounting and $15,000 under the accrual basis of accounting.

To calculate the first year's net income under both the cash basis and accrual basis of accounting, we need to understand the difference between the two methods.

Cash Basis of Accounting:
Under the cash basis, revenues and expenses are only recognized when cash is received or paid. Therefore, we will consider only the cash inflows and outflows.

Accrual Basis of Accounting:
Under the accrual basis, revenues and expenses are recognized when they are earned or incurred, regardless of whether cash is received or paid. Therefore, we need to consider accrued revenues and expenses, in addition to the cash flows.

Now let's calculate the first year's net income under both methods.

1. Cash Basis of Accounting:
Net Income = Cash Inflows - Cash Outflows

Given:
Cash Inflows (Revenues) = $33,000 (cash received from customers)
Cash Outflows (Expenses) = $22,500 (expenses incurred) - $2,250 (expenses not paid) + $3,750 (prepaid expenses for the next year)

Net Income = $33,000 - ($22,500 - $2,250 + $3,750)
Net Income = $33,000 - $27,000
Net Income = $6,000

Therefore, the first year's net income under the cash basis of accounting is $6,000.

2. Accrual Basis of Accounting:
Net Income = Revenues - Expenses

Given:
Revenues = $39,000 (earned revenues)
Expenses = $22,500 (expenses incurred)

Net Income = $39,000 - $22,500
Net Income = $16,500

Therefore, the first year's net income under the accrual basis of accounting is $16,500.