Reference no: EM133140129

Question - In its first year of operations, Cullumber Company recognized $33,700 in service revenue, $6,700 of which was on account and still outstanding at year-end. The remaining $27,000 was received in cash from customers.

The company incurred operating expenses of $17,100. Of these expenses, $13,300 were paid in cash; $3,800 was still owed on account at year-end. In addition, Cullumber prepaid $2,730 for insurance coverage that would not be used until the second year of operations.

Required -

Calculate the first year's net earnings under the cash basis of accounting, and the first year's net earnings under the accrual basis of accounting.

Which basis of accounting (cash or accrual) provides more useful information for decision-makers?