Problem:
On December 31, 2009, Matt Morgan completed the first year of operations for his new computer retail store. The following data were obtained from the company's accounting records:
Sales to customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $197,000
Collections from customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 145,000
Interest earned and received on savings accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,500
Cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 98,500
Amounts paid to suppliers for inventory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 103,000
Wages owed to employees at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3,500
Wages paid to employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,000
Utility bill owed: to be paid next month . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,100
Interest due at 12/31 on loan to be paid in March of next year . . . . . . . . . . . . . . . . . . . . . . 1,200
Amount paid for one and one-half years' rent, beginning Jan. 1, 2009 . . . . . . . . . . . . . . . . . 17,500
Income taxes owed at year-end . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,000
Question 1. How much net income (loss) should Matt report for the year ended December 31, 2009, according to (a) cash-basis accounting and (b) accrual-basis accounting?
Question 2. Which basis of accounting provides the better measure of operating results for Matt?