Question
Asked Jan 23, 2020
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Your roommate is puzzled. During the last year, the company in which she is a stockholder reported a net loss of $675,000, yet its cash increased $321,000 during the same period of time. Explain to your roommate how this situation could occur.

 

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Expert Answer

Step 1

The books of accounts of the company are prepared using the accrual basis of accounting. While computing the income of a particular period, all expenses and revenues which accrued during the period are included. It doesnt matter even if payment or receipt of cash has been made or not.

Step 2

The cash balance shows the balance of cash with which business started the period i.e. opening cash balance to which all cash receipts ...

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