Manchester Technology maintains its records using cash-basis accounting. Consider the following: - During the year, the company received cash from customers, 33,000 , and paid cash for salaries, 20,600 . - At the beginning of the year, customers owe Manchester 1,200 . By the end of the year, customers owe 4,600 . - At the beginning of the year, Manchester owes salaries of 3,600 . At the end of the year, Manchester owes salaries of 2,300 Determine cash-basis net income and accrual-basis net income for the year. Cash-basis net income & 12,400 Accrual-basis net income &

## Step 1: Understand the given data<br />### The problem provides:<br />- Cash received from customers: \( \$33,000 \)<br />- Cash paid for salaries: \( \$20,600 \)<br />- Beginning accounts receivable (customers owe): \( \$1,200 \)<br />- Ending accounts receivable (customers owe): \( \$4,600 \)<br />- Beginning salaries payable (Manchester owes): \( \$3,600 \)<br />- Ending salaries payable (Manchester owes): \( \$2,300 \)<br /><br />The cash-basis net income is already calculated as \( \$12,400 \). We need to calculate the accrual-basis net income by adjusting the cash-basis net income for changes in accounts receivable and salaries payable.<br /><br />---<br /><br />## Step 2: Recall the formula for accrual-basis adjustments<br />### Accrual-basis net income adjusts cash-basis net income for:<br />1. **Changes in accounts receivable**:<br /> - If accounts receivable increase, it means revenue was earned but not yet collected, so add the increase.<br /> - If accounts receivable decrease, it means previously recorded revenue was collected, so subtract the decrease.<br /><br />2. **Changes in salaries payable**:<br /> - If salaries payable increase, it means expenses were incurred but not yet paid, so add the increase.<br /> - If salaries payable decrease, it means previously recorded expenses were paid, so subtract the decrease.<br /><br />---<br /><br />## Step 3: Calculate the change in accounts receivable<br />### Accounts receivable increased from \( \$1,200 \) to \( \$4,600 \):<br />\[<br />\text{Change in accounts receivable} = 4,600 - 1,200 = 3,400<br />\]<br />This increase of \( \$3,400 \) represents revenue earned but not yet collected. Add this amount to the cash-basis net income.<br /><br />---<br /><br />## Step 4: Calculate the change in salaries payable<br />### Salaries payable decreased from \( \$3,600 \) to \( \$2,300 \):<br />\[<br />\text{Change in salaries payable} = 2,300 - 3,600 = -1,300<br />\]<br />This decrease of \( \$1,300 \) represents previously recorded expenses that were paid during the year. Subtract this amount from the cash-basis net income.<br /><br />---<br /><br />## Step 5: Adjust cash-basis net income to calculate accrual-basis net income<br />### Start with the cash-basis net income (\( \$12,400 \)) and adjust for the changes:<br />\[<br />\text{Accrual-basis net income} = \text{Cash-basis net income} + \text{Change in accounts receivable} - \text{Change in salaries payable}<br />\]<br />Substitute the values:<br />\[<br />\text{Accrual-basis net income} = 12,400 + 3,400 - (-1,300)<br />\]<br />Simplify:<br />\[<br />\text{Accrual-basis net income} = 12,400 + 3,400 + 1,300 = 17,100<br />\]<br /><br />---