Question - In its first year of operations, Ramirez Company recognized $31,700 in service revenue, $7,600 of which was on account and still outstanding at year-end. The remaining $24,100 was received in cash from customers.
The company incurred operating expenses of $17,100. Of these expenses, $12,020 were paid in cash; $5,080 was still owed on account at year-end. In addition, Ramirez prepaid $2,380 for insurance coverage that would not be used until the second year of operations.
(a) Calculate the first year's net earnings under the cash basis of accounting, and accrual basis of accounting.
(b) Which basis of accounting (cash or accrual) provides more useful information for decision-makers Accrual Basis Or Cash Basis?