Can someone please check my answers to the following problem.
Jack Eagles, a CPA, keeps his accounting records for his practice on the cash basis. During the current year, his clients paid $750,000 in the accounting and tax fees of which $5,000 was paid for work to be done next year. At the beginning of the year, clients owed $35,000 from the previous year. At the end of the current year, clients owed $25,000. Eagles paid $550,000 for expenses during the current year. Unpaid invoices at the start of the year totaled $10,000 and at the end of the year totaled $15,000.
- Calculate the following amounts for Jack Eagles CPA firm for the current year:
(a) Accrual basis revenue:
745,000 (750,000-5,000)
(b) Accrual basis expenses:
5,000 (15,000-10,000)
(c) Cash basis revenue:
760,000 (750,000+ 10,000)
(d) Cash basis expenses:
550,000
What happened to the $550,000 for expenses during the current year in part (b)? Might it be 550,000 + 15,000 - 10,000?
In part (b), you mentioned that the cash basis expenses for the current year are $5,000. However, based on the information provided, the expenses for the current year are actually $550,000.
To understand why the $550,000 is the correct amount, let's break it down:
1. At the beginning of the year, there were unpaid invoices totaling $10,000. This means that $10,000 worth of expenses were incurred in the previous year but were not paid until the current year.
2. Throughout the current year, additional expenses were paid. The problem does not provide any specific information about when these expenses were incurred, so we assume that they were incurred evenly throughout the year.
3. At the end of the year, there were unpaid invoices totaling $15,000. These are expenses that were incurred in the current year but were not paid by the end of the year.
To calculate the total expenses for the current year, you would add the expenses paid throughout the year ($0 at the beginning + $550,000 paid + $15,000 unpaid at the end) and subtract the expenses that were unpaid from the previous year ($10,000). This gives us a total of $555,000 ($0 + $550,000 + $15,000 - $10,000).
Therefore, the correct amount for cash basis expenses in part (b) is $550,000, not $5,000.