During 2019, a Company Makes Credit Sales of $600 000

question 14

Multiple Choice

During 2019, a company makes credit sales of $600 000, of which $475 000 is collected at year-end. It pays $175 000 in expenses and owes $50 000 for electricity used during 2019. What would the profit be if cash accounting rather than accrual accounting was used?

• A) $150 000
• B) $225 000
• C) $300 000
• D) $375 000

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Definitions:

Accounts Payable

Accounts payable is a liability account that records amounts a company owes to suppliers or creditors for goods and services received but not yet paid for.

Utilities Expense

The cost incurred from the consumption of utility services such as electricity, water, and gas in the business operations.

Income Summary Account

An account used in closing entries to gather all income and expense items, facilitating the transfer of their net balance to retained earnings.

Expense Accounts

Accounts used to record the costs incurred to operate a business, which are then matched against revenues to determine net income.