Chapter 3, Problem 2QS

In its first year of operations, Roma Company reports the following.

• Earned revenues of $45,000 ($37,000 cash received from customers).

• Incurred expenses of $25,500 ($20,250 cash paid toward them).

• Prepaid $6,750 cash for costs that will not be expenses until next year.

Compute the company’s first-year net income under both the cash basis and the accrual basis of accounting.