Question 6: During the financial year 2021-22, Mohan had cash sales of `90,000 and credit sales of ` 60,000. His expenses for the year were ` 70,000 out of which ` 30,000 is still to be paid.
Find out Mohan’s income for 2021-22 following the Cash Basis of Accounting.
Answer:
Cash sales = `90,000
Total Expenses = `70,000
Outstanding Expenses = `30,000
Cash Expenses = `70,000 – `30,000= `40,000
Mohan’s income for 2021-22= `90,000- `40,000= `50,000
Answer: Mohan’s income for 2021-22= `50,000
Question 7: Taking the figures given in Q. 6, find out the net income according to Accrual Basis of Accounting.
Answer:
Cash sales = `90,000
Credit Sales =`60,000
Total Sales =90,000 + 60,000 = `1,50,000
Total Expenses = `70,000
Mohan’s income for 2021-22== `1,50,000 – `70,000= `80,000
Answer: Mohan’s income for 2021-22= `80,000 (On the Accrual Basis)
Question 8: Vijay, a consultant, during the financial year 2021-22 earned `4,00,000. Out of whichhe received ` 3,50,000. He incurred an expense of ` 1,70,000, out of which `40,000 areoutstanding. He also received consultancy fee relating to previous year `45,000 and alsopaid ` 20,000 expenses of last year.
You are required to determine his income for the year if
(i) He follows Cash Basis of Accounting, and
(ii) He follows Accrual Basis of Accounting.
Answer:
- He follows Cash Basis of Accounting:
Income received =3,50,000
Expenses Paid in Cash= 1,70,000 – 40,000=1,30,000
Income = Income received+ consultancy fee received – Expenses Actually Paid
Income= 3,50,000 + 45,000- (1,30,000+20,000)
Income for the year = ` 2,45,000
(ii) He follows Accrual Basis of Accounting:
Income = Earning during the year – Expenses Incurred for the year
Income= 4,00,000 – 1,70,000
Income= ` 2,30,000
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